GST on residential

GST on residential, commercial and religious property

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GST on residential, commercial and religious property

GST law clearly includes renting out of the immovable property within the ambit of supply of services and therefore, GST is payable on the same. The present article clarifies GST applicability on rental income; GST on renting of commercial as well as residential property; GST on renting of precincts of a religious place; place of supply of service and various other important contacted aspects.

GST applicability on rental income-

The term ‘outward supply’ as covered under section 2(83) of the CGST Act includes rental income within its ambit. Further, the ‘scope of supply’ as summarized under section 7 of the CGST Act also covers rental income.

Additionally, Schedule II of the CGST Act, which covers the activities/ transactions to be treated as supply of goods/ supply of services, specifically covers the following types of rents-

  • Any tenancy, lease, licence, easement to occupy the land.
  • Any lease/ letting out of the building (including an industrial, commercial or residential complex) for business/ commerce.

GST on renting of commercial property-

Renting of any commercial property attracts GST. GST is payable @18%.

GST on renting of the residential house-

Service of renting of residential house is exempt under GST. Serial no. 12 to notification no. 12/2017- Central Tax (Rate) dated 28th June 2017 clearly states that NIL GST is applicable when services relate to renting of a residential house which is used for the purpose of residence.

However, it is important to note here that the above exemption will not be available in case the residential house is used for commercial purpose.

GST on renting of precincts (i.e., area) of a religious place-

As per serial no. 13 to notification no. 12/2017- Central Tax (Rate) dated 28th June 2017, services by way of renting of precincts of a religious place is exempt provided all the below conditions are satisfied-

  1. Renting of the precincts of a religious place is meant for the general public; and
  2. The area is owned/ managed by any of the following-
    1. An entity registered as a charitable/ religious trust under section 12AA of the Income Tax Act, 1961; or
    2. A trust/ an institution registered under section 10(23C) (v) of the Income Tax Act, 1961; or
    3. A body/ an authority covered under section 10(23BBA) of the Income Tax Act, 1961.

However, the above exemption is not available under the following circumstances-

  1. In the case of renting of rooms, where room charges are INR 1,000 or more per day.
  2. In case of renting of the premises/ community halls/ kalyanmandapam or open area, where daily charges are INR 10,000 or more.
  3. In the case of renting of shops/ other spaces for business/ commerce, where monthly charges are INR 10,000 or more.

Analyzing the place of supply of service-

It is important to analyze the place of supply of service

Particulars Relevant section Place of supply of service
When the location of the service provider and service receiver is in India Section 12(3) of the IGST Act

The place of supply of service will be the location of immovable property.

However, proviso to section 12(3) states that if the immovable property is located outside India. Then, in such a case place of supply of service will be the location of the service receiver.

When the location of the service provider or service receiver is outside India Section 13(4) of the IGST Act The place of supply of service will be the location of immovable property.

Explanation to section 12(3) deals with the situation when immovable property is located in more than one state. As per the said provisions, each of such states will be treated as a place of supply in proportion to the value of services. Accordingly, the states will share GST in proportion to the value of such services.

Inter-State/ Intra-State vis-à-vis renting-

As we know, CGST + SGST is payable in the case of an intra-state supply of services. Whereas, IGST is payable in case of inter-state supply of services. As per section 7(3) of the IGST Act, supply of service will be treated as ‘inter-state’ when the location of the supplier and the place of supply is in two different states/ union territories.

Accordingly, let us understand the applicability of intra-state and inter-state in relation to renting income with the help of the following examples-

Particulars Inter-State/ Intra-State
The property rented out is located in Gujarat. A service provider is also located in Gujarat. It will qualify as an intra-state supply of service. Accordingly, CGST +SGST will be payable by the service provider.
The property rented out is located in Gujarat. However, a service provider is located in Maharashtra. It will qualify as an inter-state supply of service. Accordingly, IGST will be payable by the service provider.
The property is located in multiple places like Gujarat, Jaipur and Noida. A service provider is located in Maharashtra. It will qualify as an inter-state supply of service. Accordingly, IGST will be payable by the service provider.

Applicability of reverse charge mechanism-

As per notification no. 3/2018- Central Tax (Rate) dated 25th January 2018, reverse charge is applicable under the following situation-

  • Service provided is renting of immovable property;
  • A service provider is either the Central Government or the State Government or the Union Territory or any local authority; and
  • A service receiver is a person registered under GST.

Notably, reverse charge is applicable only when the service receiver is registered under GST. In case the service receiver is not registered, then, the government will deduct GST under the forward charge mechanism.

Other important points-

  1. Availability of Input Tax Credit-

Subject to fulfilment of all the provisions of claiming an input tax credit, GST paid on rent is usually available as Input Tax Credit to the service receiver.

  1. TDS vis-à-vis GST-

TDS on rent paid/ payable is deductible under section 194I and Section 194IB. Such TDS is deductible from the rent amount only. The same is not deductible from the GST amount.

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Post by poonamgandhi

CA Poonam Gandhi is a Chartered Accountant and a Lawyer. With a wide practice experience and deep understanding of different laws and taxes, she has been an independent professional writer in the field of taxation, finance and laws.