GST on Rent: Implication on residential and non-residential dwelling

May 18, 2023

Introduction:

Goods and Services Tax is charged on the supply of goods and services. Considering GST, renting residential and non-residential property is treated as a ‘supply of service’. In this article, we shall understand the applicability of GST on residential and commercial renting. 18% GST is applicable on rental income if you fall above the minimum threshold income. We shall understand the scenarios with illustrations as and when required.

implication on residential and non-residential dwelling

Table of Content

GST on rent of residential dwellings:

The GST system was introduced in 2017. The GST rates on residential rental income have changed over time. Revised GST rates were implemented from 18th July 2022. Hence, the GST applicability on renting residential property is bifurcated into two periods:

From 1st July 2017 to 17th July 2022.
From 18th July 2012 till date.

From 1st July 2017 to 17th July 2022:

As mentioned above, rental income attracts 18% GST. But there are certain exemptions mentioned in Notification no. 12/2017 – Central Tax dated 28th June 2017. Under the head 9963 or 9972 of the notification, it is mentioned that if the rented residential property is used as a residence, then such renting service will be exempted from GST. This exemption from tax will be considered only if:

The person involved in renting residential properties is registered.
The rented residential property is used by the dweller purely for dwelling.

Any other situations apart from the above will attract 18% GST.

From 18th July 2022 till date:

Notification no. 04/2022 – Central Tax dated 13th July 2022 states some changes in the GST on renting a residential dwelling. The notification introduced reverse charges under renting residential dwellings. The other amendments made are listed below. Under the head 9963 or 9972 of the notification, it is mentioned that if the rented residential property is used as a residence, then such renting service will be exempted from GST. This exemption from tax will be considered only if:

The person involved in renting residential properties is a registered person.
The rented residential property is used by the dweller purely for dwelling.
The landlord is not registered under GST.

Any other scenarios apart from the above will attract 18% GST.

Description	1^st July 2017 to 17^th July 2022	18^th July 2022 Till date
Conditions to be fulfilled in order to get exemption from GST	The person involved in the service of renting residential properties is a registered person. The rented residential property is used by the dweller purely for the purpose of dwelling.	The person involved in the service of renting residential properties is a registered person. The rented residential property is used by the dweller purely for the purpose of dwelling. The landlord is not registered under GST.
Where the tenant is not registered under GST	Nil	Nil
Where the tenant is registered under GST	Nil	18% GST will be applicable.
Where the landlord is registered under GST	Nil	GST is applicable only if the tenant is registered under GST.
Where the landlord is not registered under GST	Nil	Nil

GST on rent of non-residential dwelling:

Non-residential dwellings are properties used for business or any other purpose apart from using them as a residence. For all commercial rentals, 18% GST under forward charge will be applicable if the landlord is a registered person. If the landlord is not registered under GST, no tax will be applicable.

A charitable trust, or religious place, registered under GST is exempted from GST if the following conditions are fulfilled:

The rent of such rooms is less than Rs. 1000 per day.
The rent of shops and offices is less than Rs. 10,000 per month.
The rent of community halls is less than Rs. 10,000 per day.

Description	Applicable Rate
Conditions to be fulfilled in order to get exemption from rent income on registered non-residential dwellings like charitable trusts, religious places, or community halls.	The rent of such rooms is less than Rs. 1000 per day. The rent of shops and offices is less than Rs. 10,000 per month. The rent of community halls is less than Rs. 10,000 per day.
Where the landlord is registered under GST	18%
Where the landlord is not registered under GST	Nil

Determining Place of Supply for GST:

The landowner’s place of residence and property ownership can be different. The place of supply shall be the state where the landlord owns the property. He can be registered in a different state and own property in a different. This shall help the landlord to identify which GST will apply CGST and SGST or IGST. Let’s understand and identify the place of supply with different instances.

Instance 1: The landlord and the rented property are from different states.

Ms. K, the landlord, is registered under GST in Maharashtra and has a property in Bangalore. He has rented his commercial property. The place of supply for this case would be Bangalore, and IGST 18% would be applicable.

Instance 2: The landlord and the tenant are both in the same state, and the property rented is also in the same state.

Mr. D, the landlord, is registered under GST in Maharashtra, and Mr. C, the tenant, is also registered in Maharashtra, and the property is also in Maharashtra; the landlord will attract 9% CGST and 9% SGST. The place of supply, in this case, will be Maharashtra. The tenant can avail of the benefits of an input tax credit.

Instance 3: The landlord and the property are registered in the same state, but the tenant is registered in a different state.

Mr. P, the landlord, is registered in Ahmedabad, and Mr. R, the tenant, is registered in Rajasthan. Mr. R has been living on rent in Mr. P’s Ahmedabad property. In this case, Mr. P will attract 9% CGST and 9% SGST. The place of supply will be Ahmedabad, in this case. In such a case, as the tenant is not registered in the same state, he will not be liable to claim the input tax credit.

What are the provisions of the Input Tax Credit (ITC) on rent?

The tenants and landlords can claim the benefits of ITC on GST on paid rent. The place of supply shall be verified once before claiming the ITC. Rest if all conditions are fulfilled taxpayer can claim for ITC.

Conclusion:

GST on rent is applicable for different scenarios explained. It is advisable to check all the aspects while renting property and paying GST on rented property. Non-compliance in filing proper returns and paying GST may attract some penalties or punishment as per the GST law. Also, note GST on rentals charged by the government or local authority to a registered person will be considered under the reverse charge mechanism, and if the property is rented to an unregistered person, the GST will be considered under the forward charge mechanism, i.e., they would deduct GST for themselves.

Frequently Asked Questions:

Q. If a residential property is rented to a company for residential use, what will be the GST levied?

A. If the landlord is registered and falls above the minimum threshold, he will be liable to pay 18% GST. Make a note use of the property cannot be the deciding factor for the applicability of GST.

Q. Can I avail benefits of ITC on repairing and renovating my rented property?

A. Yes, you can avail benefits of ITC for the repairs and renovation activity of your rented property only to the extent that it needs to be capitalized in your books of accounts. Also, section 17(5) of the CGST Act prohibits claiming ITC if any goods or services are used for the construction of the property. Apart from this, all expenses can be claimed under ITC.

Q. I own a property in Haryana, and I live in Maharashtra. I am registered in Maharashtra; do I have to register in Haryana, also?

A. No, you do not need to register in Haryana if you are already registered in Maharashtra. What is the GST levied on a property rented to a company for residential use? If the landlord is registered and his income exceeds the minimum threshold, he must pay 18% GST. Keep in mind that the use of the property cannot be used to determine whether or not GST applies.