Introduction:
In India, the Goods and Services Tax (GST) has brought significant changes to the taxation system, including the renting of residential properties. Since its implementation on July 1, 2017, the GST law has undergone several amendments, particularly concerning the taxation of residential rental properties. This blog aims to provide a comprehensive understanding of the GST implications on renting residential properties in India, including recent amendments and clarifications issued by the GST Council and the Finance Ministry.
GST on Renting of Residential Property (July 1, 2017, to July 17, 2022):
Initially, under the GST law, renting of residential property attracted an 18% GST rate. However, there was an effective exemption where no GST was levied if the residential unit was rented solely for residential purposes. This exemption meant that GST was applicable only if the property was used for commercial or business purposes, in which case the 18% GST rate applied.
Changes Effective from July 18, 2022: With the 47th recommendation of the GST Council, significant changes were introduced to the GST on renting of residential property. To avail exemption from GST on residential renting, specific conditions must be met:
- The residential property must be owned by a GST-registered individual.
- The property must be used exclusively for residential purposes.
- The tenant must not be a GST-registered entity.
If the tenant is GST-registered, regardless of the landlord’s GST registration status, GST at 18% is applicable.
Impact on GST-Registered Companies: A crucial amendment announced after the 42nd meeting of the GST Council on July 13, 2022, eliminated the exemption previously granted to renting of residential units. Consequently, GST-registered tenants are liable to pay GST at 18% if the residential unit is rented for business use, irrespective of the landlord’s GST registration status.
Clarifications and Notifications: The Press Information Bureau (PIB) issued detailed clarifications on August 12, 2022, stating that GST is only applicable when a residential unit is rented to a business entity. No GST is levied when the property is rented for personal use by an individual.
Additionally, the Finance Ministry issued a notification on December 30, 2022, clarifying that GST exemption applies to proprietors or partners of GST-registered firms renting residential properties for personal use. However, this exemption is only applicable when the renting is on their own account and not that of the business entity.
Conclusion:
The GST law in India has undergone significant changes regarding the taxation of renting residential properties. While initially, there was an exemption for properties rented solely for residential purposes, recent amendments have narrowed down the scope of this exemption. It’s crucial for landlords, tenants, and businesses to understand these GST implications to ensure compliance with the law.
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.
