If you are renting out a residential property for residential purposes, it is not subject to Goods and Services Tax (GST). However, any other type of lease or rental of an immovable property for conducting business would be subject to GST at a rate of 18%. This is because it would be considered a service and treated as a supply under GST regulations.
What is the rate of GST on Rent?
Under the GST regulations, rent paid on the renting of commercial property is subject to a tax rate of 18% of the rent paid. However, it is crucial to note that this tax is not applicable to the renting of residential property.
Rent paid on a residential dwelling unit that is rented for use as a residence is exempt from GST. It is important to note that this exemption only applies to residential properties that are being rented for use as a residence and not for commercial or office purposes. Therefore, if a residential property is rented for use as an office, showroom, or any other non-residential purpose, the GST on rent at a rate of 18% would be applicable.
In addition to the exemption mentioned above, there are several other exemptions from the payment of GST on rent that are also worth noting.
What are the Exemptions from GST on Rent?
|Exemption from GST on Rent||Details|
|Residential Property||Rent paid on renting of residential property for use as residence is exempt from GST. However, if the same residential property is rented for any other purpose like office/commercial, GST at 18% would be applicable.|
|Annual Turnover||If the total value of services provided and goods supplied by the landlord during the year is less than Rs. 20 lakhs during the financial year and he does not have a GST registration, the rent is exempt from GST.|
|Rent received by charitable or religious trusts||Rent received by a registered charitable trust or a religious trust which owns and manages a religious place meant for the public is exempt from GST if: Rent on Rooms is charged Rs. 1,000 or less per day. Rent on Shops and other spaces for business is charged Rs. 10,000 or less per month. Rent on Community Halls or an open area is charged Rs. 10,000 or less per day.|
No GST on residential property rented in a personal capacity for use as a residence
In the 48th meeting of the GST Council, it was clarified that renting out a residential property in one’s personal capacity for use as their own residence does not attract GST. However, if the same property is rented out to a business entity, then GST is applicable.
Who is required to register when the property is rented out to businesses?
If an individual earns more than the exempted threshold of Rs.20 lakh per annum, they are required to register under GST and pay taxes. This means that if a person rents out their property to a business and earns income of more than Rs.20 lakh per annum, they are liable to register under GST.
For instance, consider a scenario where Rahul owns a property in Delhi, which he has rented out to XYZ Pvt. Ltd. for use as a warehouse. Rahul earns a rental income of Rs. 25,000 per month, or Rs. 3,00,000 per annum. Since the place of supply is the location of the immovable property, the place of supply in this case will be Delhi. Therefore, since Rahul’s annual rental income is below Rs. 20 lakh, he is not liable to register under GST.
It is important to note that even if a property is rented out for residential purposes, it cannot be deemed as rental income from a residential property if it is given to a business for their use. The nature of usage of the property is not the deciding factor for GST applicability.
How to Calculate GST on Rented Properties?
When a commercial property is given on rent, the GST is calculated and charged on the total rent amount that is collected periodically.
Calculation of GST on Rent:
If an invoice is raised every period, then GST (either 9% CGST and SGST or 18% IGST) will be calculated on the rent payable.
Input Tax Credit (ITC) on Rent:
The person paying GST on rent can usually take credit for the tax paid to pay their other tax dues. ITC on GST paid on rent can be claimed if all the provisions to claim input tax credit are fulfilled.
ITC on Repairs and Renovation of Property Given on Rent:
GST paid for repairs, maintenance expenditure, and brokerage of the property given on rent is allowed as input tax credit, only to the extent it is not capitalized. However, Section 17(5) of the CGST Act disallows a taxpayer from claiming ITC on an amount spent on a few expenses, such as goods or services used for constructing an immovable property on their own account, including for the furtherance of business.
Tax Deduction on Income Tax for Rented Property:
The owner of the property that is given on rent has to collect the GST from the person paying rent. This GST will be charged on the rent paid, and the payer of rent has to deduct income tax at source at 10% if the rent for the property exceeds Rs. 2.4 lakh per year from AY 2020-21 onwards. This TDS is applicable to both residential and commercial properties, and there will be no GST on TDS.
Reverse Charge Mechanism for GST on Rent:
GST on the rent charged for immovable properties by the government or local authority to a registered person will be under the Reverse Charge Mechanism. However, when the property is rented to an Unregistered person, the government would themselves deduct GST (Forward charge mechanism).
Note: It is important to remember that GST is not applicable on residential properties rented in personal capacity for use as a residence.