UAE LLC Liquidation & Repatriation to India: A Complete Tax & Compliance Roadmap

By CA Surekha S Ahuja

Scenario: A couple has set up a UAE LLC and now wishes to wind it up and bring the proceeds to India. What is the most legitimate way to do this, and what are the tax implications?

Navigating cross-border business closure and repatriation requires precise compliance under UAE company law, Indian FEMA regulations, Income Tax provisions, residential status rules, and the India-UAE DTAA. Here’s a step-by-step professional guide.

Part I: UAE LLC Liquidation Procedure

The UAE Federal Law No. 32 of 2021 (New Commercial Companies Law) governs the LLC liquidation process. Key stages include:

1. Board/Shareholder Resolution

   • Approve voluntary liquidation and appoint a licensed liquidator.

   • Notarization required (approx. AED 800).

2. Initial Approval Application

   • Submit to relevant authority (DED for mainland; Free Zone authority for JAFZA/RAK) with MOA, trade license, shareholder IDs, and liquidator letter.

   • Fee: ~AED 2,010 for mainland LLC.

3. Publication of Liquidation Notice

   • In two newspapers (Arabic & English) for minimum 45 days to allow creditor claims.

4. Creditor Notification & Settlement

   • Settle employee dues, supplier bills, utility obligations, and lease obligations.

5. Obtain Clearance Certificates (NOCs)

   • Telecom, utilities, Ministry of HR, Free Zone authority (if applicable), banks, property authorities.

6. Cancel Immigration Records

   • All employee and sponsor visas linked to company must be cancelled.

7. Final Audit Report

   • Liquidator prepares full Statement of Affairs including assets, liabilities, employee settlements, and cash balances.

8. Final Liquidation Certificate

   • Issued by DED/Free Zone authority confirming completion and trade license cancellation.

Timeline: Typically 60–90 days (including 45-day creditor period).

Part II: Taxation on Liquidation Proceeds in India

Capital Gains under Section 46 of the Income Tax Act

• Proceeds received on liquidation of a foreign company are taxed as capital gains in India under Section 46(2).

• Computation:

$$\text{Capital Gain} = \text{Money/Assets Received} - \text{Dividend component u/s 2(22)(c)} - \text{Cost of Acquisition of Shares}$$

• UAE LLC qualifies as a “company” under amended Section 2(17), making Section 46 fully applicable.

Short-Term vs Long-Term Capital Gains

• Unlisted foreign shares:

  • Holding ≤ 24 months → Short-term (taxed at slab rate).

  • Holding > 24 months → Long-term (concessional rate).

• Rates:

  • Residents (ROR/RNOR): Long-term 12.5%, Short-term at slab rate.

  • Non-Residents: Long-term 10% (no indexation), Short-term at slab rate.

Foreign Exchange Considerations

• Gains are computed in INR at the spot rate on distribution.

• No benefit for indexation or FX fluctuation for non-residents.

Part III: Residential Status & Tax Implications

1. Determining Residential Status (Section 6(1))

• Resident: ≥182 days in India OR ≥60 days in year + ≥365 days in preceding 4 years.

• ROR vs RNOR: ROR if 2/10 years residency + 730/7 years physical presence conditions met.

2. Tax Implications by Status

Residential Status	Capital Gains Tax (LTCG)	Global Income Taxable	DTAA Benefits
ROR	12.5% on unlisted shares	Yes	Yes (TRC required)
RNOR	12.5%	No	Yes (TRC required)
NR	10% (no indexation)	No	Yes (TRC required)

Key: Tax rate depends on residential status on liquidation distribution date.

Part IV: India-UAE DTAA Considerations

1. Article 13 – Capital Gains:

   • Capital gains from UAE company shares are taxable in UAE (country of incorporation).

   • UAE has 0% personal income tax, making gains potentially tax-free if TRC obtained.

2. Limitation of Benefits (LOB) & Principal Purpose Test (PPT):

   • DTAA benefits denied if the LLC was created mainly for tax advantage without genuine business activity.

   • Maintain economic substance: employees, office, transactions.

3. UAE Tax Residency Certificate (TRC):

   • Present ≥183 days in UAE calendar year.

   • Apply via EmaraTax portal, valid 1 year.

4. Form 10F Filing in India:

   • Mandatory if claiming DTAA benefit.

   • Disclose personal details, UAE TIN (if any), address, income type, and attach TRC.

Part V: Repatriation under FEMA

• Proceeds from liquidation: Considered capital inflow under FEMA regulations.

• Compliant route:

  1. Obtain UAE liquidation certificate.

  2. Open FCNR/NRE/NRO account in India (as per FEMA).

  3. Submit Repatriation request with bank including liquidation certificate, board resolution, and bank statement from UAE.

• Ensure tax compliance in India (TDS / self-assessment) before repatriation to avoid defaults.

Key Takeaways for Practitioners

• Liquidation must strictly follow UAE law to obtain valid certificate.

• Residential status and holding period determine Indian tax rates.

• Proper TRC & Form 10F filings unlock DTAA benefits and prevent double taxation.

• Maintain genuine economic substance to avoid LOB/PPT challenges.

• FEMA-compliant repatriation ensures smooth inflow into India.

Professional Note: Cross-border liquidation and repatriation require meticulous documentation, sequential compliance, and tax planning. Missing any step—be it UAE NOCs, residential status certification, or DTAA filings—can lead to default notices or tax disputes.

Compliance Portal Mismatch Notices — The Definitive Professional Response Framework

When AIS, SFT, TDS and the ITR Do Not Align: Law, Reasoning, and Correct Closure

By CA Surekha S Ahuja

In recent assessment cycles, the Income Tax Department’s compliance ecosystem has decisively shifted from scrutiny-based selection to data-driven nudging. Compliance Portal notices—particularly under High Value Transactions and allied e-Campaigns—are neither assessment orders nor show-cause notices. They are system-generated reconciliation alerts, triggered when the Department’s consolidated data (AIS, SFT, Form 26AS, TDS returns and third-party reporting) does not align with the manner in which income is presented in the return of income.

One of the most frequent—and technically misunderstood—triggers is commission income offered under “Income from Other Sources” (IFOS) while the reporting entity or system algorithm perceives the receipts as business-linked.

This note sets out a legally defensible, professionally accepted, and practically effective framework for responding to such notices—across assessment years—without panic, over-correction, or avoidable litigation exposure.

The Nature of a Compliance Portal Notice — First Principles

A Compliance Portal notice is not an allegation.
It is a request for reconciliation.

At this stage, the Department is not examining tax evasion; it is examining data consistency. The obligation on the taxpayer is not to litigate, but to explain or regularise.

Three realities must be kept distinct:

• The portal operates on limited, standardised response options.

• The law operates on substantive classification principles under the Income-tax Act, 1961.

• The professional role is to bridge this gap without conceding an incorrect legal position.

Why These Notices Are Issued — The Real Trigger

Such notices typically arise due to one or more of the following system signals:

• TDS under sections 194H, 194D or 194J, suggesting an agency or commission relationship

• SFT / Form 61A reporting of receipts beyond threshold limits

• Payer-side tagging of payments as “business commission”

• AIS auto-categorisation differing from the head selected in the ITR

• Pattern-based AI flags (frequency, amount, payer consistency)

The system does not decide the correct head of income.
It merely detects inconsistency.

The Legal Axis — How Commission Income Is Classified

The Act does not classify income based on payer perception, TDS section, or system tagging. Classification depends on substance, continuity, organisation, and intent.

Commission income may lawfully fall under:

Profits and Gains of Business or Profession — Section 28
Where the activity reflects regularity, organised effort, continuity, and a profit-oriented business structure.

Income from Other Sources — Section 56
Where the receipt is incidental, occasional, supplementary, or devoid of business organisation.

A compliance notice does not mean the classification is wrong.
It means the system seeks to understand why your classification differs from its inference.

The Compliance Portal Constraint — and the Correct  Response

The Compliance Portal offers limited dropdown responses that do not capture nuanced legal classification. This is a design limitation, not a legal one.

In professional practice, the most defensible response in classification mismatch cases is:

“Information is not fully correct”

This option allows explanation without denying the transaction or conceding error.

The remarks should clearly record:

• That the amount is fully disclosed

• That the classification difference is intentional and law-based

• The factual basis for the chosen head of income

• Whether a revised return has been filed, or whether the original return is being relied upon

This approach preserves the legal position while satisfying the reconciliation objective of the portal.

Revised Return — When It Is Mandatory and When It Is Strategic

A revised return under section 139(5) is not compulsory in every mismatch case.

It becomes essential where:

• The original classification is demonstrably incorrect

• The selected ITR form becomes invalid due to reclassification

• Deductions, audit exposure, or computation materially change

• The taxpayer seeks to close the issue conclusively at the return level

Where IFOS classification is legally correct, a reasoned portal response alone may suffice.

Where reclassification is required, a revised return is the strongest statutory cure, far superior to narrative explanation alone.

Multi-Year Perspective — Why Similar Notices Appear Across Years

Similar notices may arise for different years because:

• AIS and SFT data are refreshed retrospectively

• Payers revise TDS returns belatedly

• System risk parameters evolve year-on-year

• Classification inconsistencies compound over time

Each assessment year must be examined independently.
Consistency is desirable—but correctness overrides consistency.

Scenario-Based Professional Action

Commission is truly incidental
Explanation on the portal with documentary support; revised return only if disclosure error exists.

Commission has gradually become regular
Reclassification through revised return is advisable to prevent future escalation.

Payer classification is aggressive but facts are passive
Maintain IFOS position with evidence; do not reclassify merely to match payer tagging.

Reclassification increases compliance burden
Correctness must prevail over convenience. Defensive compliance today prevents adversarial proceedings tomorrow.

Documentation That Actually Matters

At the compliance stage, quality outweighs volume. The most persuasive records are:

• Bank statements showing receipt pattern

• Payer correspondence or agreements

• TDS certificates and AIS extracts

• Prior-year treatment demonstrating continuity—or its absence

What the Department Usually Does Next

In most cases, a reasoned response or revised return results in silent closure.

If the matter progresses, it usually moves to:

• Information request under section 142(1)

• Verification of deductions (if PGBP is accepted)

• Rarely, reassessment—typically where facts contradict explanation

A proactive, well-documented compliance-stage response significantly reduces escalation risk.

The objective is not merely to “clear the notice”, but to align tax records with economic reality in a legally defensible manner.

Overreaction creates compliance risk.
Underreaction invites scrutiny.

Measured correction—supported by law and facts—closes the matter.

Closing Note

Compliance Portal mismatch notices are a structural feature of modern tax administration, not a signal of wrongdoing. When handled with legal clarity, factual discipline, and procedural maturity, they remain exactly what they are intended to be: course-correction prompts, not litigation triggers.

This framework reflects best professional practice and applies equally to commission income mismatches, AIS variances, SFT discrepancies, and similar compliance alerts across assessment years.

Share Premium, Start-ups and Section 68:

By CA Surekha S Ahuja

Evidence, Enquiry and the Limits of Assessing Officer Discretion

ITO v. Indic Wisdom (P.) Ltd.

(2025) 181 taxmann.com 23 (ITAT Mumbai) 

The jurisprudence surrounding share capital and share premium has reached a stage where the law is settled, but its application remains unsettled. Additions under section 68 continue to be made not for want of evidence, but for want of enquiry.

The Mumbai Bench of the ITAT, in ITO v. Indic Wisdom (P.) Ltd. (2025), delivers a measured and legally disciplined ruling, restoring the statutory boundaries between section 68 and section 56(2)(viib), particularly in the context of DPIIT-recognised start-ups.

This decision is not expansive; it is corrective.

Legislative Architecture: Understanding the Two Provisions

Section 68 — A Rule of Evidence, Not Valuation

Section 68 operates where:

• a credit appears in the books, and

• the assessee fails to satisfactorily explain its nature and source.

Judicially, the explanation is tested on three immutable parameters:

1. Identity of the creditor

2. Creditworthiness of the creditor

3. Genuineness of the transaction

These are conditions precedent, not postulates of convenience.

Once prima facie evidence on these three limbs is produced, the section exhausts itself unless the Assessing Officer brings contrary material on record.

Section 56(2)(viib) — A Targeted Charging Mechanism

Section 56(2)(viib) is:

• valuation-specific,

• rule-driven (Rule 11UA), and

• legislatively excluded for DPIIT-recognised start-ups.

Its inquiry is not into source, but into price in excess of FMV.

CBDT Circular dated 10.10.2023, issued under section 119, makes this exclusion binding and non-discretionary.

Factual Matrix in Brief

The assessee, a DPIIT-recognised start-up engaged in manufacturing natural products, issued equity shares at a premium during AY 2022-23.

The assessment was framed under section 143(3) read with section 144B, wherein:

• section 56(2)(viib) was effectively bypassed,

• yet the entire share premium was added under section 68.

The addition was sustained despite:

• valuation under Rule 11UA,

• banking channel receipts,

• statutory filings, and

• identification details of subscribers.

Core Legal Determinations by the Tribunal

Section 56(2)(viib) Immunity — Affirmed but Contained

The Tribunal categorically held:

• DPIIT recognition grants immunity from section 56(2)(viib),

• in terms of DPIIT notification dated 19.02.2019 and CBDT Circular dated 10.10.2023.

However, the Tribunal clarified that:

• such immunity does not, by itself, bar enquiry under section 68.

This preserves conceptual separation between charging and evidentiary provisions.

Discharge of Initial Onus under Section 68

The Tribunal recorded that the assessee had furnished:

• names and PANs of subscribers,

• bank statements evidencing fund flow,

• valuation report under Rule 11UA,

• Form PAS-3 and allied statutory filings,

• explanations for NRI subscribers.

These documents constituted adequate prima facie proof of identity, creditworthiness, and genuineness.

The statutory burden under section 68 thus stood discharged.

Assessing Officer’s Failure to Conduct Enquiry

Despite multiple opportunities afforded by the Commissioner (Appeals):

• no remand report was filed,

• no independent verification was undertaken,

• no adverse material was produced.

The Tribunal held that:

Section 68 does not permit substitution of enquiry with conjecture.

Allegations of fund layering or low returned income, without investigation, remain suspicion — not evidence.

Valuation Cannot Be Reintroduced Through Section 68

The Tribunal implicitly reaffirmed that:

• dissatisfaction with share valuation,

• especially where section 56(2)(viib) is legislatively inapplicable,

• cannot be routed through section 68.

Section 68 is not a backdoor valuation provision.

Binding Legal Propositions Emanating

1. Section 68 is evidentiary and conditional, not presumptive.

2. Once the assessee furnishes primary evidence, the onus shifts conclusively.

3. Absence of enquiry by the Assessing Officer vitiates the addition.

4. DPIIT protection under section 56(2)(viib) cannot be diluted indirectly.

5. CBDT circulars issued under section 119 are mandatory in application.

Litigation Significance

This ruling strengthens a crucial litigation position:

Section 68 cannot be used to correct what the statute consciously chose not to tax under section 56(2)(viib).

For start-ups, investors, and tax professionals, the decision reinforces that:

• commercial valuation is not to be judged through suspicion, and

• statutory exemptions cannot be neutralised by evidentiary shortcuts.

Conclusion

The Tribunal’s ruling in Indic Wisdom (P.) Ltd. is a quiet but firm assertion of legal discipline.

Where evidence exists and enquiry is absent,
section 68 collapses under its own conditions.

This decision restores section 68 to its intended evidentiary role — nothing more, nothing less.

GST on Rent Paid to Unregistered Landlords

 By CA Surekha Ahuja

Why RCM Becomes a Cost at 5% and a Credit at 12% / 18%

Accommodation businesses across India increasingly operate from residential buildings taken on rent from unregistered individuals, converting them into hotels, hostels, PGs, guest houses and service apartments.

While outward GST at 5% on room tariff appears simple and attractive, the GST paid under reverse charge on rent often emerges as a silent margin killer.

This article explains the current position under GST law, the interplay of Sections 9, 16 and 17, the relevant rate and RCM notifications, and finally, the lawful tax-planning levers available to such businesses.

Substance Over Structure: Why This Is Not “Residential Renting”

GST law looks at use, not architectural design.

Even if the property is residential in nature, once it is used for:

• short-term or transient stays,

• tariff-based accommodation,

• hotel, hostel, PG or guest-house operations,

• bundled services such as pantry, housekeeping or managed lodging,

the supply ceases to be “renting of residential dwelling for use as residence.”

Accordingly:

• the exemption under Notification 12/2017-CT (Rate) does not apply, and

• the rent becomes a taxable supply, ordinarily liable to GST at 18%.

This position has been consistently reinforced through CBIC clarifications and sectoral understanding.

Section takeaway:

A residential building used commercially is taxed commercially.

Why Reverse Charge Applies on Such Rent

Under Section 9(3) of the CGST Act, the Government may notify supplies on which GST is payable by the recipient.

Renting of immovable property by an unregistered person to a registered person has been notified under this provision through:

• Notification 13/2017-CT (Rate), and

• the later introduction of Entry 5AB, covering renting of any immovable property by unregistered persons to registered (non-composition) recipients.

Result:
Where a registered accommodation operator takes premises on rent from an unregistered landlord, GST @18% must be paid under RCM, irrespective of:

• the room tariff charged, or

• whether outward supplies are taxed at 5%, 12% or 18%.

RCM here is structural, not optional.

The Core Question: Is ITC of RCM Rent Available?

The answer depends entirely on the outward tax regime chosen.

A. Where Outward Accommodation Is Taxed at 5% Without ITC

Accommodation services taxed at 5% are subject to a decisive condition in the rate notification:

“Provided that credit of input tax charged on goods and services used in supplying the service has not been taken.”

This condition has overriding effect.

Even though:

• Section 16 generally allows ITC of tax paid under reverse charge, and

• rent is clearly used in the course or furtherance of business,

the concessional rate itself contractually blocks ITC.

Consequences

• GST paid under RCM on rent cannot be availed as ITC

• ITC on pantry, housekeeping, security, repairs, etc. is also blocked

• RCM becomes a pure cost, not a credit

Section takeaway:

At 5%, GST simplicity comes at the cost of credit denial.

B. Where Outward Accommodation Is Taxed at 12% or 18% With ITC

Once the concessional 5% option is not adopted:

• the “no-ITC” condition disappears,

• RCM tax on rent qualifies as input service, and

• ITC becomes available, subject to Sections 16 and 17.

There is no block under Section 17(5) for such rent when premises are used for taxable accommodation.

Here, RCM shifts from cash leakage to recoverable credit.

Section takeaway:

The same RCM tax behaves very differently under a regular rate regime.

Ancillary Services: No Separate Immunity

Ancillary services such as:

• pantry and catering,

• housekeeping,

• security,

• maintenance and facility management,

do not enjoy independent ITC treatment.

Their credit eligibility flows entirely from the outward accommodation rate:

• 5% regime → no ITC on any inputs or services

• 12% / 18% regime → ITC allowed, with proportionate reversal under Section 17 if required

Mandatory Compliance Under RCM

Where rent is paid to an unregistered landlord, statutory compliance is non-negotiable:

• Self-invoice under Section 31(3)(f)

• Payment voucher under Rule 52

• GST payment in cash

• Reporting in GSTR-3B

A lease agreement or rent receipt does not substitute self-invoicing.

Lawful Tax-Saving and Structuring Strategies

GST does not prohibit planning — it penalises ignorance.

The following strategies are lawful, defensible and audit-safe.

Periodic Review of 5% vs 12% Option

Remaining at 5% merely because it “looks cheaper” is often sub-optimal.

Where:

• rentals are high,

• operating inputs are significant, and

• business is stable rather than transient,

12% with ITC may yield a lower effective tax burden.

There is no statutory bar on switching options prospectively.

Segmentation of Distinct Business Lines

Where factually supported, separation of:

• accommodation,

• conference or training facilities,

• cafeteria services,

• events or banquet operations,

allows:

• accommodation at 5% (no ITC), and

• ancillary services at 18% with ITC,

with proportionate credit under Section 17.

Artificial splitting without operational independence should be avoided.

Contract Clarity With Landlords

Well-drafted agreements clearly distinguishing:

• rent,

• utilities,

• maintenance or reimbursements,

reduce valuation disputes under Section 15 and support correct tax treatment.

This is commercial clarity, not tax avoidance.

Cost Management Where ITC Is Blocked

Even under the 5% regime:

• vendor selection,

• GST-inclusive pricing,

• service consolidation,

can materially reduce embedded tax costs.

Preventive Compliance: The Cheapest Saving

Wrongful ITC claims under the 5% regime attract exposure under Section 73.

Best practices include:

• separate non-creditable ledgers,

• disabling auto-ITC capture for RCM rent,

• monthly pre-GSTR-3B reviews.

Final Position

• RCM on rent is unavoidable when property is used for commercial accommodation

• ITC depends entirely on the outward rate chosen

• At 5%, RCM is a sunk cost

• At 12% / 18%, RCM becomes a recoverable credit

In One Line

RCM always applies. ITC applies only if you consciously allow it.

GST efficiency in accommodation businesses is therefore a matter of design, not accident.

PAS-6 Compliance Guide (Dec 2025) A Fully Interpreted, Professional Standard Note

By CA Surekha S. Ahuja

PAS-6 has evolved from a perceived routine return into one of the most disclosure-sensitive compliance instruments under the Companies Act, 2013. With the extension of mandatory dematerialisation from unlisted public companies to private companies, PAS-6 now functions as a half-yearly audit of a company’s capital integrity, validated through depository data.

The risk in PAS-6 does not arise from filing delays alone. It arises from what the form inevitably reveals—legacy physical share certificates, incomplete promoter dematerialisation, ISIN gaps, unresolved corporate actions, and mismatches between depository records and statutory registers. This makes PAS-6 a high-exposure compliance area for companies and a high-liability certification area for professionals.

This note explains the law, legislative intent, applicability under Rule 9A and Rule 9B, filing requirements, compliance conditions, penalties, and transition obligations, in one integrated analysis.

Statutory Foundation and Legislative Intent

The obligation to hold securities in dematerialised form originates from Section 29 of the Companies Act, 2013.

Section 29(1)(a) mandates dematerialisation where securities are offered to the public. Recognising the need to extend ownership transparency beyond public issues, the legislature introduced Section 29(1A), empowering the Central Government to prescribe additional classes of companies whose securities must be held only in dematerialised form.

Exercising this power, the Ministry of Corporate Affairs notified:

• Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014, applicable to unlisted public companies; and
• Rule 9B, extending the same dematerialisation discipline to private companies, other than those expressly exempted.

The legislative intent under both rules is uniform and unambiguous—transparent ownership, clean capital structures, and complete traceability of every share from issue to transfer. PAS-6 is the statutory mechanism through which this intent is periodically verified.

Applicability — Who Is Required to File PAS-6

PAS-6 is applicable to every company that is statutorily required to dematerialise its securities under Rule 9A or Rule 9B.

Under Rule 9A, PAS-6 applies to all unlisted public companies, including private companies that are deemed public by virtue of being subsidiaries of public companies under Section 2(71).

Under Rule 9B, PAS-6 applies to private companies, other than those specifically exempted. This includes closely held companies, family-owned companies, investment and holding companies, and dormant private companies, unless they fall within an exempt category.

PAS-6 does not apply to listed companies, as they are governed by SEBI’s share capital reconciliation framework. Nidhi companies, Section 8 companies, OPCs, LLPs and non-corporate entities are also outside the regime.

There is no turnover, paid-up capital, shareholder count or activity threshold under either Rule 9A or Rule 9B. If a company falls within scope, compliance is mandatory irrespective of size or operations.

Nature of Compliance and Filing Frequency

PAS-6 is a mandatory half-yearly return for all companies covered under Rule 9A or Rule 9B.

For the half-year ending 30 September, PAS-6 must be filed on or before 29 November.
For the half-year ending 31 March, PAS-6 must be filed on or before 30 May.

The obligation to file PAS-6 exists even where there is no change in share capital or ownership during the period. Inactivity does not create exemption.

Mandatory Preconditions Before Filing PAS-6

Before PAS-6 can be prepared or filed, certain statutory conditions must be satisfied.

First, every class of security must have a valid ISIN. Without ISIN, PAS-6 cannot be generated on the MCA portal. Importantly, delay in filing is counted from the statutory due date even if the ISIN is under process.

Second, under Rule 9A(4) and Rule 9B(4), promoters, directors and key managerial personnel are mandatorily required to hold all securities only in dematerialised form. Even one physical share certificate results in statutory non-compliance and is expressly disclosed in PAS-6.

Third, the records of NSDL and CDSL, the Registrar and Transfer Agent, and the company’s register of members must reconcile fully. Any pending or partially implemented corporate action—such as bonus, rights issue, conversion, buyback or transmission—appears as a mismatch in PAS-6.

What PAS-6 Discloses

PAS-6 is not a procedural filing; it is a capital integrity reconciliation statement. It reports, on an ISIN-wise basis, the company’s issued and paid-up capital, dematerialised holdings with NSDL and CDSL, physical holdings still outstanding, demat and remat requests and their status, dematerialisation compliance of promoters, directors and KMP, and all corporate actions undertaken during the half-year.

The form must be digitally signed by the company and certified by a Practising Company Secretary, making accuracy and reconciliation legally critical.

Penalty and Adjudication Exposure

Neither Rule 9A nor Rule 9B prescribes a specific penalty. Consequently, Section 450 of the Companies Act, 2013 (General Penalty) applies.

Under Section 450, the company and every officer in default are liable to a base penalty of ₹10,000, with an additional ₹1,000 per day for a continuing default. There is no statutory maximum cap, and adjudication orders increasingly impose penalties until compliance is achieved.

Delays in filing, incomplete dematerialisation, ISIN non-availability and reconciliation mismatches are all treated as continuing defaults.

Interpretational and Practical Clarifications

If even one promoter holds shares in physical form, the company is in default, and PAS-6 will disclose it without discretion. Promoters do not have the flexibility available to non-promoter shareholders.

If a private company becomes covered under Rule 9B, the obligation to dematerialise securities and file PAS-6 arises immediately, not prospectively.

Non-promoter shareholders who refuse to dematerialise cannot transfer shares or subscribe to new securities, but this does not excuse promoter-level non-compliance.

Corporate actions approved but not reflected in depository records result in reconciliation mismatches and must be supported by proper explanations and documentation.

PAS-6 under Rule 9A and Rule 9B is no longer a routine statutory return. It is a half-yearly, depository-validated audit of ownership integrity. For companies, a clean PAS-6 reflects governance discipline and investor readiness. For professionals, it is a high-liability certification area requiring strict legal interpretation, reconciliation discipline and complete documentation.

In the post-Rule 9B regime, capital hygiene is continuously examined, digitally traceable and legally enforceable.

GST Guide 2025–26: Hotels, Hostels, PGs, Night Shelters, Commercial Rentals, RCM & Composition

By CA Surekha Ahuja

This comprehensive guide consolidates GST rates, exemptions, composition eligibility, RCM rules, illustrations, and practical tax planning for Hotels, Hostels, PGs, Budget Lodges, Night Shelters, Commercial Rentals, and Per-Day Backpackers.

GST RATES & EXEMPTIONS (2025–26)

Accommodation / Service	Tariff / Duration	GST Rate	Exemption	Notes
Hotels / Guest Houses / Daily Hostels / Lodges	< ₹7,500/day	5%	❌ None	Standard commercial accommodation (new slab w.e.f. 22-Sep-2025)
Hotels / Guest Houses / Daily Hostels / Lodges	≥ ₹7,500/day	18%	❌ None	Premium commercial accommodation
Residential PG / Hostel	≥30 days / monthly	Exempt	✔ Yes	Long-stay residential; falls under residential exemption
Charitable Night Shelters / NGOs	Any (≤ ₹1,000/day)	Exempt	✔ Yes	Budget shelters run by trust/NGO only
Restaurant / Tea / Snacks inside hotel/hostel	Billed separately	5% / 12% / 1% composition	❌	Depends on type of supply; 1% if composition eligible
Commercial property rent (office/guest house)	Any	18%	❌ None	Tenant pays RCM if landlord is unregistered

Note: The <₹1,000/day exemption for commercial accommodation was withdrawn effective 18-Jul-2022 except for charitable accommodation. (CBIC Notification No. 05/2022‑CT(R))

RCM ON COMMERCIAL RENT

Scenario	Effective Date	RCM Applicability	Notes / References
Commercial property rented by unregistered landlord → registered tenant	10-Oct-2024	✅ Regular taxpayer pays 18% RCM	ITC claimable; Notification No. 09/2024‑CT(R)
Composition taxpayer renting commercial property	16-Jan-2025	❌ Exempt	No GST liability; Notification No. 07/2025‑CT(R)
Interim period 10-Oct-2024 → 15-Jan-2025	CBIC Circular 245/02/2025	Regularized as-is-where-is	GST paid accepted; non-payment → no penalty
Residential property rental for residence	N/A	❌ Not applicable	Exempt; no RCM

COMPOSITION SCHEME — ELIGIBILITY & THRESHOLDS

A) Legal Basis

• Section 10 of CGST Act, 2017; Rules 3–5 of CGST Rules, 2017.
• Turnover limit: ₹75 lakh (general states), ₹50 lakh (special category states).
• Composition taxpayers cannot collect GST, cannot claim ITC, must issue Bill of Supply. (CBIC FAQ)

B) Accommodation & Ancillary Services

Supply	Composition Eligible?	Notes
Hotels / Guest Houses / Daily Hostels	❌	Main accommodation (SAC 9963) not eligible
Short-stay PG / Hostel (<30 days / day-wise tariff)	❌	Taxable commercial accommodation
PG / Hostel (>30 days residential)	✔ Only for taxable ancillary services	Accommodation exempt; food/laundry/WiFi/amenities may be included under 1% composition (turnover ≤2 cr)
Charitable Night Shelters	✔ Optional	Only taxable ancillary services; main accommodation exempt
Commercial Renting (office/guest house)	❌	Not eligible for composition

Important: Ancillary services must be billed separately to qualify for composition.

PER-DAY BACKPACKERS / HOSTEL WITH ANCILLARY SERVICES

Classification:

• Daily bed / room → Commercial accommodation, taxable

• Tea / snacks / small meals → Ancillary services, can be billed separately

• Duration <30 days → treated as hotel/hostel service; residential exemption not applicable

GST Rates for Ancillary Services:

Component	Tariff / Billing	GST Rate	Notes
Room / Bed per night	Any	5% (<₹7,500) / 18% (≥₹7,500)	Short-term accommodation
Tea / Snacks / Small Meals	Billed separately	5% (restaurant) or 1% composition	Only if composition eligible
Laundry / WiFi / Amenities	Billed separately	18% or 1% composition	If operator opts for composition for taxable services

RCM IMPLICATIONS (PROPERTY RENT)

Landlord Type	Operator Status	RCM Applicability
Unregistered landlord	Regular taxpayer	✅ Pay 18% RCM, ITC claimable
Unregistered landlord	Composition taxpayer	❌ Exempt (from 16-Jan-2025)
Residential property (>30 days stay)	Any	❌ Not applicable

ILLUSTRATIONS

Scenario	GST / Composition Outcome
Hotel Room ₹1,200/day	5% GST; composition ❌
Hostel ₹800/day (<30 days)	5% GST; composition ❌
PG ₹10,000/month (>30 days)	Accommodation exempt; food/laundry taxable → composition 1%
Night Shelter ₹200/day (NGO)	Exempt; composition optional for ancillary services
Commercial Guest House Rent ₹90,000/month	Tenant pays 18% RCM if regular taxpayer; composition exempt after 16-Jan-2025
Per-day backpacker example	Bed ₹400 → 5% = ₹20; Tea/snack ₹50 → 5% = ₹2.5 or 1% composition = 0.5; Laundry/WiFi ₹50 → 18% = 9 or 1% composition = 1

TAX-PLANNING STRATEGIES

1. Separate Billing:

   • Room = 5%/18% GST (cannot opt for composition)

   • Ancillary services = 1% composition if eligible

2. Long-Stay Residential Packages:

   • Monthly PG >30 days → accommodation exempt

   • Ancillary services → composition 1% if turnover ≤2 cr

3. RCM Management:

   • Composition taxpayers exempt from RCM after 16-Jan-2025

   • Regular taxpayers must pay RCM; ITC claimable

4. Turnover Management:

   • Keep taxable ancillary turnover ≤2 cr to remain eligible for composition

5. Documentation:

   • Separate accommodation & services invoices

   • Maintain duration of stay

   • Self-invoice for RCM if applicable

FINAL DECISION TABLE — ACCOMMODATION, RCM & COMPOSITION

Stay Type / Service	Duration / Tariff	GST Rate	RCM	Composition Eligibility
Hotels / Guest House	Any daily	5–18%	❌	❌
Hostel / PG	<30 days / per day	5–18%	❌	❌
PG / Hostel	≥30 days / monthly	Exempt	❌	✔ Only for ancillary services
Night Shelters (Charitable)	Any	Exempt	❌	Optional for ancillary services
Commercial Rent	Any	18%	✅ Regular taxpayers; ❌ Composition	❌ Not eligible

KEY TAKEAWAYS

• <₹1,000/day exemption withdrawn; only charitable accommodation remains exempt.

• Composition taxpayers cannot opt for main accommodation, only taxable ancillary services (food, laundry, WiFi).

• Composition relief from RCM on commercial rent is applicable post 16-Jan-2025.

• Daily accommodation / hotels / short-stay PGs cannot opt for composition.

• PGs/hostels >30 days → accommodation exempt; composition 1% possible on taxable ancillary services.

• Segregation of accommodation and ancillary services is critical for GST planning and compliance.

• Maintain invoices, stay duration, and turnover records to remain eligible for composition and RCM relief.

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