Are you navigating the Complex of GST regulations surrounding residential property rentals? Whether you’re a landlord renting out your property or a tenant leasing a space for your business, understanding the nuances of Goods and Services Tax (GST) is crucial. Let’s delve into the essentials to demystify GST on rent of residential properties.
Understanding GST on Rent
GST, a multi-stage, destination-focused tax, applies to the goods and services provided. Initially, commercial property rents were subject to GST. However, as of July 18, 2022, residential property rents became subject to GST if rented by a person or entity registered under GST. The 47th GST Council meeting recommended a reverse charge mechanism (RCM) payment of 18% GST for such rentals.
Clarifications by the Government
The government clarified that GST on renting residential property applies only when leased to a business entity. Renting to individuals for personal use or by owners/partners of companies for personal use remains exempt from GST.
GST on Rental Income
Rental income from residential or commercial properties for business purposes up to INR 20 lakh annually is exempt from taxation. For personal use, GST on residential property rent is nil. Rental income is considered a provision of services under the GST Act, with the GST set at 18%.
Differentiating GST on Rent and GST on Rental Income
GST on rent concerns tenants, whereas GST on rental income concerns landlords. Tenants pay GST on rent if they’re GST-registered entities using residential property for business purposes. Landlords pay GST on rental income.
Registration Requirements for Commercial Use
Taxpayers earning above the exempted threshold must register for GST and pay taxes. The threshold limit for GST registration is INR 20 lakh annually, higher than the previous Service Tax threshold of INR 10 lakh.
Illustrative Example
For instance, Sweta rents out her Hyderabad apartment to ABC Ltd. for use as a guest house, earning INR 6,00,000 annually. Despite living in Mumbai, the place of supply is Hyderabad, but Sweta doesn’t need GST registration as her total revenue is below INR 20 lakh annually.
GST Method for Business Rentals
GST at 18% applies to the taxable value of all rented business areas. Charitable or religious trusts managing public religious places may be exempt from GST under certain conditions.
Input Tax Credit
Those paying GST on residential property rent can use the credit to meet other tax obligations, subject to fulfilling Input Tax Credit requirements.
In conclusion, understanding GST on residential property rentals is pivotal for both landlords and tenants. It ensures compliance with regulations and facilitates informed decision-making in the realm of property leasing.
This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.
