When electricity charges are bundled with rent or maintenance fee imposed by real estate developers, mall operators or airport operators, such a service qualifies as a composite supply under the Goods and Services Tax (GST) regime. As a result of this, such a service would attract 18% GST, the Central Board of Indirect Taxes and Customs (CBIC) has clarified.
“It is clarified that whenever electricity is being supplied bundled with renting of immovable property and/or maintenance of premises, it forms a part of the composite supply, and shall be taxed accordingly. The principal supply is renting of immovable property and/or maintenance of premises and the supply of electricity is an ancillary supply,” the CBIC said in a circular issued on October 31, 2023.
The new clarification by the CBIC means tenants of commercial properties will have to pay 18% GST on electricity charges if the service is bundled with renting of property or its maintenance charge. According to tax experts, this would result in increased cost of renting for tenants as landlords would factor in a higher rate while offering the supply.
Even if electricity is billed separately, the supplies will constitute a composite supply and, therefore, the rate of the principal supply i.e. the GST rate on renting of immovable property and/or maintenance of premises would be applicable, it added.
According to the CBIC, a composite supply under the GST would mean “a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply”.
Bundled service means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services.
However, when electricity is supplied by the real estate owners, resident welfare associations (RWAs), real estate developers, etc., as a pure agent on an actual basis, it will not form part of value of their supply, the CBIC said. Such a service would not be deemed composite supply.
“Where they charge the same amount for electricity from their lessees or occupants as charged by the state electricity boards or distribution companies from them, they will be deemed to be acting as pure agent for this supply,” it added.
Who is a pure agent under the GST?
A pure agent is a person who:
(a) Enters into a contractual agreement with the recipient of a supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both
(b) Neither intends to hold nor holds any title to the goods or services or both so procured or provided as pure agent of the recipient of supply
(c) Does not use for his own interest such goods or services so procured
(d) Receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account
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