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Co-working operators and tax experts urge the Center to simplify GST Registration for firms operating from a common location. The request came after the GST authorities asked for comprehensive documents, such as registered leases and approvals from the original owners, to dissuade firms from using peer-to-peer setups only for GST registration.
“registration denied” co-working space This is a challenge faced by a lot of MNCs who want to start small in India to test the market and environment or follow a hybrid model of working,” Saket Patwari, Executive Director – Indirect Taxes, Nexdigm he said.
Despite the benefits and flexibility provided by peer operators, one glaring hurdle was the denial of GST registration when applying for ‘principal place of business’ at such shared locations.
The tax authority’s cautious approach comes from concerns of increased revenue leakage where GST registrations were fraudulently obtained and misused for fake invoices and thus transfer of “Paper Input Tax Credit”.
Many operators do not give NOC to the tenant unless a director of the company is operating from the premises and the minimum lock-in is for one year. This is to ensure misuse of GST number.
“If the authorities are aware of any wrongdoing on the part of certain businesses, it should be shared with the industry participants so that they can be vigilant,” said Aditya Verma, founder and CEO of The Office Pass (top) , “Extreme care should be taken in painting all businesses with the same brush, as it would derail the much needed formality of these businesses.”
Indian small and medium businesses (SMBs) have traditionally operated from homes or from unauthorized residential areas (lal-dora land) due to cost pressures. For this reason many businesses have been on the radar of the tax authorities.
“GST registration in co-working space has been rejected mainly due to lack of documentation at the end of the co-working space owner on the one hand and over-cautious approach by the field officer on the other. At the co-working space owner’s end, it has to be understood that NOC from the owner of the premises is mandatory for GST registration,” said Vivek Jalan, partner, Tax Connect Advisory, a multi-disciplinary tax consultancy firm.
past denial
In the past, there have been cases where peer-to-peer companies have been denied GST.
“This was based on the fact that multiple offices are operating from the same address. However, things are changing now and the governing agencies are also understanding and understanding more about the co-working ecosystem and its operations.
The Department has also rightly contended that there is no consistency in the registrations received at such co-working places in view of the limited records available at the place of business and the permanence of such addresses.
“A mid-way approach could be to get a joint NOC co-signed by both the landlord and the owner of the co-working space. There have been controversies in the past where illegal trading was done by co-workers and the bosses denied having any knowledge of it. Therefore it is important that the owners take some responsibility and take some precautions before making the premises available to individuals.”
In a co-working space, there is an original owner who leases his property to a co-working space developer who further provides space and other services to multiple companies. Getting spaces differs from getting a desk/cabin to getting an entire floor.
Experts said there is no doubt that fake invoicing and fraud detection have increased and need to be controlled and stopped, but the current trend is hurting genuine taxpayers wanting to do business in India.
“Foreign companies may stop investing in India considering the stringent registration provisions in the hybrid workflow model as of today. A judicious clarification by the GST Council is the need of the hour to clear the air on GST registration issues and devise a mechanism to check credit frauds without affecting genuine taxpayers who are registered to pay GST. It is a fundamental thing for the Patwari,” said Saket.
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