Categories: Gst Compliance

Key Note on applicability of GST@18% on Rent

Renting residential property got expensive Now

GST on service of renting residential dwelling of w.e.f. 18-07-2022 

Starting 18 July 2022, Goods and services tax will be applicable on residential property renting to a person registered under GST. But, In case the property is rented to an unregistered person, GST would not be charged. And it will be payable as RCM applicable on that.

  • A registered person who rents a residential property must pay GST on RCM. This indicates that the service provider is an unregistered individual. If the service provider is a registered individual, he would be able to add the GST to any invoices he creates and paying the forward charge.
  • It must be made clear that salaried individuals who got their income in the form of rent or a lease will not be subject to this tax. Only if the company or person has completed the GST registration process does the new rule applicable.
  • there is no requirement to pay any GST in case a company rents a home for its employee.
  • Furthermore, if both the owner as well as the tenant are not GST registered, then there is no legal liability to pay any GST on the rent.

Is the lessee obligated to check if the lessor has a GST registration or not?

  • The lessee has no obligation to ensure or confirm the lessor’s GST registration because GST is paid using the reverse charge mechanism.

Is the lessee still obligated to pay tax Even if the lessor is GST-registered?

  • The recipient of the service is obligated to pay tax in accordance with the reverse charge procedure. No matter if the service provider is registered or not, this circumstance applies. Even if the service provider is registered, GST must be paid by the customer when renting out residential properties.

Will ITC be available for Goods and services tax paid on residential property renting ?

  • Since a residential property is used for business purposes and not for personal use by employees, it is eligible for credit if it is used as a guest or transit home. However, credit is likely to be restricted under Section 17(5)(g) when such a residence is used as corporate leased housing or bachelor’s accommodation (without recovery)

Should existing leases also be subject to GST, or only new leases?

  • According to the time of supply specified by the GST statute, GST liability will arise.
  • In the event of a reverse charge, Period of supply is the earlier of the date of payment or 60 days following the date of the invoice.
  • GST will have to be paid on both the new and the current leases based on the time of supply.

Will a person who is registered for GST be required to pay GST if they rented a home?

  • Only if the residential property is being utilised for commercial purposes and is viewed by an individual as a business expense would GST be payable.
  • If the property is just utilised for private uses, however, GST would not be payable and should be regarded as unregistered person rent instead.

New GST Rule Compulsory applicable: 18% GST Rate on Unsettle Rentals

  • In the future, We required to pay GST on the unsettling rentals, With effect from 18 July 2022. The revenue department of the Finance Ministry would levy an 18 percent GST on all residential rents ( but it should not be used for Personal Use)
  • A residential property rented to an enrolled individual under the GST will now be subject to an 18% GST tax that must be paid by the lessee, with the lessor being released from all legal obligations.( but it should not be used for Personal Use).
  • IGST will be charged if the landlord is registered in a state other than the one where the property is located. If he is in the same state, then CGST and SGST would apply.( but it should not be used for Personal Use)

What is provision of TDS on income tax for the rented property ?

  • In case any property provided on rent,  payers of rent has to deduct TDS at 10% , In case the rent for the property Moreover than exceeds INR 2,40,000/- per annual.
  • TDS as per the provision of income tax act applies both to commercial property as well as residential.

Following are Gist of Implication on GST of Residential Property rental

Tenant Landlord Good and services Tax Input tax Credit
Registered Under GST Registered Under GST Good and services Tax under reverse charge mechanism Input tax Credit can be claimed if the property is taken on rent for the furtherance of business
Unregistered Registered Under GST No Good and services Tax applicable N.A.
Unregistered Unregistered No Good and services Tax applicable N.A.
Registered Under GST Unregistered Good and services Tax under reverse charge mechanism Input tax Credit can be claimed if the property is taken on rent for the furtherance of business

Residential dwellings Renting for residential use

  • Renting of residential dwelling to a registered person for use as residence taxable under RCM i.e., registered person (recipient) is liable to pay tax ( but it should not be used for Personal Use)
  • The Renting of residential dwelling to un-registred person exempt; and
  • Renting of residential dwelling for commercial purpose taxable in the hands of supplier under FC irrespective whether recipient is registered or not.
  • At any point of time a residential dwelling is rented to a GST registered person, then obligation under RCM is attracted. ( but it should not be used for Personal Use)
  • Finally end use of such dwelling unit i e. Either as residence or for commercial purpose use, & status of the service provider i.e. whether Non-registered or registered are all not relevant

Recent update on Via PIB Tweets

Conclusion on Rent Commercial Property or on Residential GST.

  • When it comes to the implementation of GST on Rent on Residential Property, there is a significant amount of confusion and uncertainty among landlords and tenants. With regard to the relevant portions and notifications, this article will relieve your concerns as well as provide clarity.

PIB Tweets : No GST on residential unit rents even if prop. of firm is registered in Goods and Services Tax.

Tweet Vs. Notification

  • According to the Tweet PIB – GST is not apply even if partner of firm or proprietor rents residence for his personal use. (But there is no such provision in the Reverse Charge Mechanism in GST Notification notified)
  • A Details Central Board of Excise and Customs circular/ clarification should be issue issued in this regard
  • The change will affect corporate organisations that have rented out residences to their employees.
  • Such registered taxpayers will now be obligated to pay GST under the reverse charge system, which may have an impact on the P&L as the department may contest the credit’s eligibility by considering it to have been utilised for personal uses. Industry should carefully examine this credit eligibility.

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