GST On Rent: Residential vs. Commercial Properties
Goods and Service Tax apply to all goods and services sold in India. For rent, GST is applicable as property renting is a supply of service. However, there are certain conditions under which you have to pay GST on your rent as a tenant. GST is charged differently on rent paid for residential and commercial property. For any property used or meant to be used as a residence, no GST is charged. However, any leasing or renting of a commercial property is considered a service and applicable to GST.
Does renting out a property attract GST?
According to the GST Act, renting out an immovable property would be treated as a supply of services. GST, however, will be applicable only to certain types of rent such as:
- When a property is given out on lease, rent, easement, or licensed to occupy
- When any property is leased out (or let out) including a commercial, industrial, or residential property for business (either partly or wholly)
This type of renting is considered a supply of services and would thus attract tax.
GST on Renting of Residential Property
GST is not applicable if a residential property is rented out to a registered person in their personal capacity and for use as their own residence. In other words, if a residential property is rented out, that too for residential purposes, then the rental income from such property does not attract GST.
However, it is important to note that this exemption only applies when the property is rented out in a personal capacity and used as a residence. If the same property is rented for commercial purposes or to a business entity, it will attract GST.
GST on Commercial Property Renting
Commercial property renting is considered as a supply of service and is taxable under the GST Act. GST will be applicable at 18% on the taxable value.
In case, a registered charitable trust or religious trust owns and manages the commercial property, the rent is tax-free and GST payment is not applicable. However, there are some conditions which must be fulfilled to get this exemption:
- Room rents cannot exceed Rs. 1,000 /day
- Community hall or open area rent must be below Rs. 10,000/day
- Shop rents must be below Rs. 10,000/month
What will be the place of supply for charging GST?
Tax under the GST is levied through three components: CGST, SGST and IGST.
If the landlord and the rented property are registered in the same location: 9% CGST and 9% SGST will be charged.
If the landlord and the rented property are registered in different locations: The place of supply will be where the property is located. The service will be considered interstate supply and IGST will be applicable.
If the landlord is registered in the same state where the property is, but the tenant is registered in a different state: 9% CGST and 9% SGST will be charged. In this case tenant can’t claim input tax credit.
How to Calculate GST on Rented-Out Properties?
GST on rented properties is calculated on the basis of the rent charged to the tenant for the property. The landlord has to pay GST on the rent income received from the tenant. The GST rate on renting an immovable property is 18%.
Let’s understand this with an example.
Suppose the rent of a rented commercial property is Rs.40,000 per month. Then, the GST will be calculated as follows –
GST = Rs.40,000 x 18% = Rs.7200
So, the landlord will have to pay Rs.7200 as GST on the rent of Rs.40,000 per month.
When is GST registration mandatory?
If you have a property and you have rented it to a business and they are using it for commercial purposes, then only you have to register under GST. Therefore, you are liable to pay GST on commercial property rent. If you are the landlord, you are responsible for collecting GST from the tenant and depositing it to the GST department.
However, if the income from your rent is below Rs. 20 lakh per annum, you do not have to pay taxes as per the GST Act. This is because the GST registration threshold limit is Rs. 20 lakh per annum and for special category states, this limit is Rs. 10 lakh per annum.
For Example- Sanjay resides in Surat and he owns a property in Bhopal. Currently, ABC Ltd Company is a tenant of it. For the property in Bhopal, Sanjay earns a rent of Rs. 30,000 per month. His total annual rent collection is Rs. 3,60,000 which is within the threshold limit as per the GST Act. So, Sanjay does not need to register under GST and does not have to pay GST for rental income.
ITC on GST on rent
Generally, a business can claim ITC on the GST paid on rental expenses, provided these expenses are incurred for the purpose of business. The person paying GST on rent can claim ITC, if all the provisions to claim Input tax credit are fulfilled.
ITC on repairs and renovation of property
Section 17(5) of the CGST Act, which lists scenarios in which ITC can and cannot be claimed, established that the GST paid on repairs and renovation of the property is allowed as ITC as long as it is not capitalised.
From,
Krishnakant Jakhotia
Mobile No :-9422507911
Email Id :- taxtalknew@gmail.com
