GST on Rent
GST on Rent – Does Rent Attract GST?
GST on rent shall apply on commercial buildings leased or provided for rent by the owner or on behalf. The GST Act explicitly mentions that renting of immovable property shall act as a supply of services. However, GST is applicable only on certain types of commercial buildings. In this article, we look at types of rent that attract GST in India.
The Pre-GST Era
To understand how the GST effects income through rent, it is essential to know how things worked in the pre-GST era. Before the implementation of GST, property owners register provisions with appropriate documents by themselves under the Service Tax, if the total rental income from all their properties crossed over INR 10 lakhs. When landlords let out their properties for commercial purposes, then a service tax of 15% was levied. This also applies if a residential property used for commercial purposes by the owner or on behalf.
GST on Rental Income
The Ministry of Finance exempted tax from income obtained from renting out a residential or commercial property for a commercial purpose up to INR 20 Lakh. However, the GST on rent for residential purposes shall attract NIL GST rate irrespective of the amount of income. Hence, renting of properties shall act as a supply of services under the GST Act. The Ministry fixed the GST on rent as 18% and the place of supply shall act as the location of the immovable property.
However, GST shall apply to particular types of rent and the following below lists the type of rent:
- When an immovable property provided for a lease, rent, easement, or licensed to occupy by the landlord.
- When an immovable property leased out as a commercial, industrial, or a residential property for business either partly or wholly.
The type as mentioned earlier of renting shall apply as a supply of services and would attract taxes.
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Schedule 2 of the GST Act
In Schedule 2 of the GST Act, the following types of transactions with respect to land and building shall apply as a supply of services.
- Any lease, tenancy, easement, licence to occupy land is a supply of services;
- Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.
However, services by way of renting of residential dwelling for use as residence is exempt from GST. Hence, only renting of residential premises for use as residence is exempt from GST.
Any other type of lease or letting out of the immovable property (even the property described as residential property) for business or commerce shall apply as a supply of service attracting GST at 18% rate.
Thus, the key to determining if GST is applicable for renting of immovable property is whether the property would be used for business or commerce. If the property would be used for business, then GST would be applicable to the rent at 18%.
Exemptions
The following are the exemptions of rental income obtained from an immovable property with regards to Goods and Service Tax.
- When the landowner lets out the property for residential purposes.
- When the rental income from a property that is not let out for commercial purposes does not exceed the threshold of INR 20 Lakhs annually.
- When the rent earned by a registered charitable trust or a religious trust and the rent of a room is INR 10000 or less for a day.
- When the rent earned by a registered charitable trust or a religious trust and the rent of the space, be it business units, shops, or community halls of such a charitable trust is INR 10,000 or less for a day.
Exemption for Charitable Organisations
Under GST, the following applies for exemption of GST applies on renting of precincts of a religious place meant for the general public, owned or managed by an entity registered as a charitable or religious trust or a trust or an institution or a body or an authority:
- Renting of rooms where charges are Rs 1000/- or less per day.
- Renting of premises, community halls, Marriage halls or open area, etc where charges are Rs 10,000/- or less per day.
- Renting of shops or other spaces for business or commerce where charges are Rs 10,000/-or less per month
In all other cases, GST at the rate of 18% shall apply on the taxable value and the GST shall treat the rent as a taxable supply of service.
GST Registration for Landlord
A taxpayer who earns more through rental income than the exempted threshold is mandatorily required to register under GST and pay taxes. Therefore, an individual who has let out his property to business is required to register themselves under GST if they earn more than INR 20 Lakhs through the rental income of the property in question.
Input Tax Credit
An individual who pays GST on the rent can take input tax credit for paying GST. In simple words, Input Tax Credit on GST paid on Rental Income can be claimed if all the provisions to claim the input tax credit are fulfilled.
GST TDS
The landowner of the property, which is given out on rent, would have to collect the GST TDS from the individual who pays the rent at the property. Therefore, GST would be charged on the rent obtained. The rent payer has to deduct income tax at the source at 10 per cent if the rent of the property exceeds an amount of INR 1.8 Lakhs per year. The Tax Deduction at Source applies to residential as well as commercial properties. There would be no GST on Tax Deduction at Source. GST on rent charged for an immovable property by the Government or the Local Authority to a registered individual shall apply under the Reverse Charge Mechanism.
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