If you’re a tenant or a landlord in India, you might have some questions regarding GST on rent. In this article, we’ll provide you with a comprehensive guide on GST on rent, including what it is, how it’s calculated, and who is liable to pay it and all other information you need to know about GST on rent, so you can make informed decisions and avoid any penalties. So, let’s dive in!
In India, a comprehensive tax known as the Goods and Services Tax (GST) is imposed on the delivery of products and services. Service tax, VAT, and excise duty have all been replaced by the GST. The GST is not simply applicable to goods and services. It also applies to rent, a vital component of the real estate industry.
GST on rent is a tax imposed on the income received as a rental from a tenant for the use of a property by a landlord. Both business and residential premises are covered.
Tax on rental income before GST
In the pre-GST era, the landlord was required to register for service tax if the entire value of their taxable services, which includes rental income from all properties, exceeded Rs. 10 lakh annually. The landlord won’t be subject to service tax as long as the total annual rental revenue (from all rented properties) does not exceed Rs. 10 lahk.
Commercial properties alone that were rented out were subject to service tax under the former tax system. Even if a home property is used for business purposes, this still holds true. For commercial properties, a service tax of 15% of the rent was charged. Also, there was no service tax applied to the rental income from residential homes.
Key points to remember about GST on commercial rent
The use of the property determines whether or not the GST is applicable, not its nature. If you live in Delhi and own a home in Chennai that you rent to a publicly traded firm to use as a guest house, the rental revenue from that transaction will be subject to GST if it exceeds Rs. 20 lakhs annually. In this case, the house is being used commercially—as a guest house.
Where will the supply come from in the aforementioned scenario? The location of the immovable property shall be the place of supply for Tax purposes. Even if you live in Delhi, the point of supply will always be Chennai, where the property is, and Tamil Nadu will therefore be the state that receives the SGST.
Rental income that is less than Rs. 20 lahk per year is exempt from paying GST. Again, whether it is a business rent or a residential rent will depend not on the nature of the property but rather on the nature of the ultimate use.
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What is the difference between GST on rent and GST on rental income
When a landlord receives an annual rent of Rs. 20 lakh, GST on rental income is applicable, and the landlord is essentially required to pay GST on rental revenue.
Contrarily, GST on rent is the tax that the tenant is responsible for paying if they are a GST-registered entity and are utilizing a residential property for commercial purposes. Simply put, the tenant pays the Tax on rent while the landlord is responsible for paying the GST on rental revenue.
What factors determine the applicability of GST on rent
Type of property
Properties rented for commercial or business use are subject to Tax on rent. The rental revenue and rent paid from a residential property may both be subject to tax under the GST scheme, even if it is rented out for commercial or corporate reasons. It is crucial to note that, regardless of how the property is used, your GST liability will remain in place as long as you have rented it out for commercial purposes.
The Tax on rental revenue would not be applicable if a landlord had rented out his residential property to a person who was not registered for the GST for residential use.
Rental income limit
When you receive an annual rental revenue of Rs 20 lakhs or more from your service-providing business, you are required by the GST system to pay GST on your rent. This threshold was previously set at Rs. 10 lakhs. The ceiling for businesses is Rs. 40 lakh annually.
GST on Immovable Property Rented for Business Use
The landlord must pay GST on any rental revenue from immovable property that is rented out for a business or commercial purpose. The GST rate for renting out real estate for business purposes is 18% of the taxable value. The following are the ways in which the owner will apply GST on rent and the division of GST on rent on commercial property:
|Monthly rental income of the owner||Rs 2,50,000|
|Additional IGST at 18%||Rs 45,000|
|Total invoice amount||Rs 2,95,000|
|Monthly rental income of the owner||Rs 2,50,000|
|Additional CGST at 9%||Rs 22,500|
|Additional SGST at 9%||Rs 22,500|
|Total invoice amount||Rs 2,95,000|
Lease on GST
No GST would be charged on the revenue earned if residential homes were rented out for domestic use. This indicates that under the Act, any rental revenue derived from residential purposes would be excluded.
If a property is rented out for charity or religious reasons, no GST will be charged on the rental income. Nevertheless, the GST would only be excused if,
- A room costs less than Rs. 1,000 a day to rent.
- Less than Rs 10,000 is the monthly rent for a shop.
- A community hall or open area costs less than Rs 10,000 per day to rent.
ICT provisions for charging GST on rental properties
Renting out a commercial property or a property utilized for business purposes would be regarded as a supply of services under the requirements of the GST Act. As a result, when a property is leased or rented out, GST will be required.
GST would be applicable to properties of this nature.
- commercial buildings
- industrial buildings
- operating residential properties
The central government has decided to change the threshold limit of GST applicability on rental income following the implementation of the new unified tax system. With the change, rather than paying Rs 10 lakh in pre-GST times, properties with yearly rental incomes over Rs 20 lakh will now be subject to GST at a rate of 18%.
How to raise an invoice for GST on rent
In the event that GST has been applied to the rent, the landlord must properly generate a GST Invoice in line with the Invoice Regulations that include the Invoice No., Date of Invoice, Rent Paid, GST Rate, and a number of other details.
The government does not have a standard format for raising a GST invoice. The government has decreed that certain goods must be included in the invoice. It is not required to mention these things there. In addition, the landlord is permitted to include any other materials outside those that are required by law.
Advantages and Disadvantages of GST on rent
- The GST has increased the level of transparency in the tax system, which includes how rent is taxed. Unlike before, tenants can now see in plain sight how much tax they are paying on their rent.
- The GST rate for residential properties is only 5%, which is considerably less than the previous service tax rate of 15%. Tenants now have to pay less tax on their rent as a result of this.
- Landlords and real estate brokers are now more compliant thanks to the GST. Companies must now register for GST and submit frequent returns, which promotes improved accountability and compliance.
- Regarding the application of the GST on rent, there is still a great deal of ambiguity and lack of clarity. The tax ramifications of lease agreements are a topic that many renters, landlords, and real estate agents are unclear about.
- Landlords and real estate agents now have more administrative work to do as a result of the introduction of the GST. They are now required to register for GST and submit frequent returns, which can be laborious and time-consuming.
Finally, it should be noted that the GST on rent is applied in India and is determined by the kind of property and the monthly rent. If the annual rental revenue from commercial buildings exceeds Rs. 20 lakhs, the landlord must register under GST. Input Tax Credit (ITC) claims can be made by landlords on the GST paid on commercial buildings. Also, they must submit their GST returns on a monthly or quarterly basis.
What happens if the landlord fails to register for GST on rental income?
If the landlord fails to register for GST on rental income, they may face penalties and legal action from the government.
Is GST on rent applicable on rent paid by a tenant to a landlord who is not an Indian resident?
Yes, GST on rent is applicable on rent paid by a tenant to a landlord who is not an Indian resident if the property is located in India.
Can tenants claim the input tax credit on GST paid on rent?
No, tenants cannot claim the input tax credit on GST paid on rent as it is a cost that is borne by the landlord.
Is GST on rent applicable on the sub-letting of a property?
Yes, GST on rent is applicable on the sub-letting of a property. The sub-tenant has to pay GST on the rent paid to the primary tenant.
Can landlords claim the input tax credit on GST paid on expenses related to their rental properties?
Yes, landlords can claim the input tax credit on GST paid on expenses related to their rental properties such as maintenance, repairs, and renovations.
What happens if the landlord charges GST on rent but is not registered for GST?
If the landlord charges GST on rent but is not registered for GST, they may face penalties and legal action from the government.