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What will be the GST Implications on income through rent?

What are the GST implications on Rent ?

What will be the GST Implications on income through rent?

GST has chalked out various taxes that were collected. Rent is one of the sources of income for years. Paying rent is also one of the prominent expenses in any business. In this article, we will talk about the impact of the implementation of GST on rent. We will also talk if the Goods and Service Tax  varies for commercial properties and residential properties.

Pre-GST era

The landlord was required to obtain service tax registration if the total taxable services which also include rent from all properties exceed Rs.10 lakh per year. If the rental income is not exceeding Rs.10 lakh per year the landlord would not attract service tax. Service tax was levied at 15% of the rent on commercial properties. Additionally, rent income from residential properties did not attract service tax.

Post the Implication of the Goods and the Service Tax Act.

According to the GST Act, renting out an immovable property will be a supply of services. GST is applicable:

  • If the property is given on lease, rent, easement, or licensed to occupy.
  • If the property is leased out or let out including a commercial, industrial, or residential property for business.

Effect on Rent

Residential properties are exempt from the Goods and Service Tax. Any other type of leasing or renting out the immovable property would attract the 18% GST as it would be a supply of service. Since the implementation of GST, the threshold limit of the GST has been increased to Rs.20 lakh from Rs.10 lakh in the pre-GST era. So a taxpayer who is earning more than the exempted threshold is required to register under the Goods and Services Tax  Act and is taxable. In case if you are getting more than Rs.20 lakh as the rent you will be required to register under GST.

GST calculation when the property is rented 

Commercial spaces that are on rent need to pay Goods and Service Tax  of 18% on the taxable value and rent will be the taxable supply of service.

If the registered charitable trust or the religious trust owns and manages the religious place meant for the public it is exempted from Goods and Services Tax. This can happen only when:

  • The rent of the room is less than Rs.1000 per day
  • The rent of the shops and the other spaces for business is less than Rs.10,000 per month.
  • The rent of community halls or any area is less than Rs.10,000 per day.

The person paying the Goods and Service Tax on rent can usually take the credit for the tax paid to pay his other tax dues. When all the provisions to claim the Input Tax Credit are fulfilled the ITC on GST that is paid can be claimed.

The owner of the property has to collect the Goods and Services Tax Act from the person he has rented the property to. The rent payer has to deduct the Income Tax source at 10% in case the rent for the property is exceeding Rs. 2.40 Lakh per year from the year 2020-2021 onwards. Both for the residential and the commercial properties, there is TDS, there is no GST on TDS.

The GST on the rent charged for immovable properties by the Government or the local authorities to a registered person will be under the Reverse Charge Mechanism. In case if the property is rented to a  registered person the government will deduct the GST (Forward Charge mechanism)