GST on Rent

A quick recap

First things first. Here’s a quick look at the pre-GST phase¹.

1. As a landlord, you had the responsibility to get registration for service tax in case your taxable services from all rental properties were over Rs. 10 lakhs annually.
2. On the other hand, if your rental income (from all sources) was below Rs. 10 lakhs, then you would not be charged any service tax.
3. Only commercial properties that were let out were being charged service tax. This also included if a residential property was being used for commercial goals.
4. A 15% service tax was applicable on rent for commercial properties, while rental income from residential properties was exempt from this tax.

 

The introduction of GST brought several changes to the rental income. Under this system, renting a property is now considered a supply of services. This brought the rental property to a taxable rate of 18%¹. This 18% is to be included in the total rent that is paid by the tenant. While GST is applicable on almost all goods and services, when it comes to rental income, the charges are different for residential property as compared to commercial property. Let’s take a look.

 

According to the 48th GST Council¹, no GST is applicable on the residential property rent. If you are a house owner and have rented your residential property for residential use, then you do not pay taxes. If your total income from the rent comes under taxability, then you have to pay the required tax as per the income tax slab you fall in.

 

Similarly, if you are staying in a residential property and not using it for any kind of business/ commercial use, you do not need to pay any GST on the property rent¹. This implies that if a registered individual is the owner of a proprietorship firm and rents out a residential property in their personal capacity (rather than through the proprietorship), and the property is intended for their own use as a residence, GST will not apply.

 

As discussed earlier, when you rent out a commercial property, it is considered to be a supply of service. Therefore, this is taxable under the GST. The tenant becomes liable to pay 18% of a GST over and above the rent that is payable.

 

If the commercial property is a registered religious trust or a charitable trust and manages the place for the public, then the rent becomes tax-free, and GST does not apply. This is subject to following conditions:

• The room rent is under Rs. 1000 per day¹
• The rent of the hall/ open area is less than Rs. 10,000 per day¹
• The rent of the shops is less than Rs. 10,000 per month¹.

 

 

 

It should also be kept in mind that, as a taxpayer, if your earnings are more than the exempted limit, you need to register them under the Goods and Service Tax and pay the liable taxes. Simply put, if you have leased your property to a business, it will be taxable. Also, if you earn revenue from business (this includes rent and other exempted income) of over Rs. 20 lakhs a year, you need to register yourself under the GST Act.

 

For those providing only services, the GST threshold is set at Rs. 20 lakh. This revision offers relief to landlords who were previously taxed under the Service Tax system, allowing them to earn an additional Rs.10 lakh before GST applies. For states with special category status, the threshold remains Rs. 10 lakh.

 

How is GST calculated on properties that are rented out?

On a rented property, GST is charged based on the rent that is charged. The landlord pays GST on the rent income that they receive from the tenant. GST on the rent of an immovable property is 18%. Let’s take a look at this example. The rent of a commercial property is Rs. 20,000 a month.

 

 

The GST calculation will be done using this formula: GST = (Rent x 18%)/100.²

This will be Rs.20,000 X 18%= Rs. 3600

So, the landlord will pay GST of Rs. 3600 on the rent of Rs. 20,000.

 

Conclusion

GST Act clearly states that renting of property (immovable property) is treated as a supply of a service. GST is applicable only on commercial property such as offices, shops, stores, warehouses, etc. As a property owner, it is essential for you to be well aware of your tax liabilities and the GST on rent.

 

FAQs

 

1. Is there any GST on rent?

   ¹
   
   For residential properties, there is no GST on rent. However, in the case of commercial property, an 18% GST is applicable on the rental payments.

    

2. What is the place of supply for charging GST?

   ¹
   
   There are cases where the property owner is registered in a state which is different from the state where the property is situated. Here, it is for the landlord to choose/ identify the place of supply to decide whether CGST and SGST are charged or IGST applies.

    

3. What are ITC provisions under GST on rent?

   ¹
   
   The individual who pays a GST on rent can take credit for the tax that is paid to pay their tax dues. In case all the provisions to claim ITC (that is, Input Tax Credit), then ITC on GST on rent can be claimed.