Now, GST on home rent: Check out if you need to pay
A tenant, who is registered under the Goods and Services Tax, is required to pay GST at 18 per cent for renting a property, according to the new GST rules effective from July 18. The 18 per cent tax on rent paid is only applicable to tenants registered under the GST, meaning a GST-registered person who carries out business or profession will incur 18 per cent GST on such rent paid to the owner.
Earlier, only commercial properties like offices or retail spaces given on rent or lease attracted GST. There was no GST on rent or lease of residential properties by corporate houses or individuals.
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As per the new rules, a GST-registered tenant will be liable to pay the tax under the reverse charge mechanism (RCM). The tenant can claim the GST paid under Input Tax Credit as a deduction.
Property owner not to pay GST
The tax will only apply when the tenant is registered under GST and liable to file GST returns. The owner of the property is not liable to pay the GST.
The government also clarified in a tweet that “renting of residential unit is taxable only when it is rented to business entity️.” It further clarified that “no GST when it is rented to private person for personal use; no GST even if proprietor or partner of firm rents residence for personal use.”
A GST-registered person, who offers services from a rented residential property, will be liable to pay the tax at 18 per cent.
Under the GST law, registered persons include individuals and corporate entities. The GST registration is mandatory when a person carrying out business or profession reaches an annual turnover of more than the threshold limit.
The limit under the GST law varies according to the nature and place of supply. The threshold limit for a registered person supplying services alone is Rs 20 lakh in a financial year.
The limit for a supplier of only goods is Rs 40 lakh. However, if the registered entity is located in any of the north-eastern states or special category states, the threshold limit is Rs 10 lakh per financial year.
Impact on companies
The new changes, implemented after the 47th meeting of the GST Council, will impact the companies and professionals who have taken residential properties on rent or lease.
The rent paid by companies towards the housing properties taken on rent to be used as guest houses or residences for employees will now attract 18 per cent GST. This will increase the employees’ costs for the companies that are offering free accommodation to employees.
