Applicability of GST for Renting of Residential Properties
Residential rents will be subject to the Goods and Services Tax (GST) beginning on July 18, 2022, according to a gazette of central tax announcement released on July 13 by the Union Finance Ministry under Nirmala Sitharaman. The updated notification modified the earlier decision from June 2017 and included residential properties rented to registered people within the 18% GST tax payment.
However, no person who rents an apartment and does not have a registered GST number would be required to pay the full 18% of GST. Meaning that if a household on a salary is not registered, they are not compelled to pay the government the 18 percent GST on their rental costs.
A residential property would be liable to GST registration at the rate of 18% under the new July 2022 notification when it is rented to a person who is registered for GST. Additionally, under the reverse charge method, the lessee (occupant) must pay the GST to the government’s credit (RCM).The 18 percent GST on residential rents, however, varies from instance to case. For instance, developers provide privately rented apartments for redevelopment project inhabitants. It is unclear in this instance whether the builders would be responsible for paying the 18% GST. The notification, in the opinion of many stakeholders, has to be carefully examined in order to comprehend its ramifications.
Who is covered by the GST?
With this change, the lessor would be taxed if they rented a home for their employees or directors to use as a guest house or for other purposes. According to the new requirement, a firm that rents out a few apartments to its employees may now also need to include in its tax filings proof that it paid the 18 percent GST on such leases.
Who is issued a GST number?
Any individual who provides a service or items for more than 20 lakhs and 40 lakhs respectively is required to register. Several states have various registration minimums.
What exactly is this new amendment feared for?
An unforeseen consequence of provision is that person or owner who is GST registered and has rented a home for his or her “personal use” rather than as a business expense would also be taxed. Stakeholders urge the government to intervene right away.
What does the sector think about applying an 18% GST on residential rentals?
Vice Chairman of NAREDCO and physician Niranajn Hiranandani said, “In compared to commercial rental yield, which is extremely appealing at 8 percent to 10 percent, residential rental yield is poor at about 2 percent to 3 percent. It is bad to impose an 18 percent GST on residential rents since it will harm the investments in residential real estate. It will be applied to everyone required to register under the GST Act, therefore the lessee, not the lessor, is responsible for paying the tax. High GST rates may also discourage corporate companies from continuing to provide accommodation for their staff, which will have an effect on the institutional renting market.”
Whereas Knight Frank India’s Director of Research, Vivek Rathi, said, “The Indian rental real estate industry would be significantly impacted. By raising the tax burden on companies that rent out residential homes to use as lodging and guest houses for their employees, the move may limit the growth of rental real estate in India.”
Rathi continued by saying that the residential rental product will cost a consumer about 2.5 percent per year in rental yield and an additional 0.45 percent of the property’s market value will be a burden. Tenants and landlords may first agree to split the cost. The responsibility will eventually fall on the tenant, though.
GST ON RENT AT 18%
Beginning on July 1st, India will implement the GST, which replaces a number of indirect taxes including the VAT, service tax, excise duty, and others. Since July 1st, 2017, the GST has taken the place of all previous indirect taxes on all purchases.
Simply put, GST would be assessed in their place going forward. The GST has four different rates: 5, 12, 18, and 28 percent. The sort of products or services will determine the exact fee that will be charged.
GST on Rent
GST on rent is levied at 18% of the amount paid in rent. It is crucial to remember that the GST is only charged on the rental of commercial property; it is not charged on the rental of residential property.
According to Notification No. 12/2017, rent for a residential dwelling unit used as a residence is not subject to GST tax. It is significant to highlight that only residential housing units used for residential purposes are excluded from this rule; none are used for business, offices, or other purposes. As a result, GST on Rent at 18% would be applicable if a residential property was rented for use as an office, showroom, or for any other use other from housing. In addition to the exemption described above, there are a number of other exclusions from paying GST on rent, which are covered in more detail below.
What are the GST exclusions for rent?
In the following circumstances, GST on Rent is exempt:
- If the immovable property is a home used for living,
- During the financial year, the landlord’s total value of services rendered and commodities supplied was less than Rs. 20 lakhs, and he is not registered for GST,
- A registered charity trust or a religious trust that owns and operates a house of worship open to the public is receiving rent, and:
- It costs Rs. 1,000 or less each day to rent a room.
- Shops and other commercial locations require a monthly rent of at least Rs. 10,000.
- Rent for community halls or open spaces is charged at a daily rate of Rs. 10,000 or less.
Calculating Rs. 20 Lakhs in turnover to qualify for an exemption
If the landlord’s total revenue from goods and services during the fiscal year is less than Rs. 20 lakhs, he is not obliged to get a GST Registration Number and is not obligated to charge GST on rent. It is essential to remember that rent received is likewise regarded as a service and is factored into the calculation of turnover. The total rent collected from all of the properties plus the total cost of the services and commodities (if any) delivered by his firm shall not exceed Rs. 20 lakhs.
Except for the states listed below, all states are subject to this Rs. 20 lakh restriction. The cap is Rs. 10 lakhs for the states listed below:
- Arunachal Pradesh
- Jammu & Kashmir
- Himachal Pradesh
Computing GST on Rental Income
GST on Rent would be levied as explained in the below provided example: –
If the landlord is registered in the same state, the GST would be substituted by CGST at 9% and SGST at 9%.
IGST of 18% will be charged if the landlord is registered in a separate state.
How Do I Create A GST On Rent Invoice?
In the event that GST has been applied to the rent, the landlord must properly generate a GST Invoice in line with the Invoice Rules that includes 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 those certain goods must be included in the invoice. It is not required to state these things there. In addition, the landlord is permitted to include any other materials outside those that are required by law.
Practical Examples for Understanding
The three parts of GST are CGST, SGST, and IGST. CGST and SGST are charged for intrastate transactions whereas IGST is charged for interstate transactions.
As this would directly affect whether CGST+SGST or IGST is to be paid, it is crucial to ascertain if the rent received is an instance of same state transaction or inter-state transaction.
According to the GST Law, the location of the property is always the place of supply for moveable property.
However, in the case of GST on Renting of Property, it is also crucial to ascertain if the landlord is registered in the same state as the property or is registered in a separate state.
Example 1: The landlord and tenant are both legally recognized in the state where the property is situated
CGST and SGST would be assessed at 9% and 9%, respectively, if the landlord is registered in the same state as the property. For instance, CGST at 9% and SGST at 9% will be charged in this scenario if Mr. Karan Batra, who is registered in New Delhi, rents out his commercial property in Delhi.
Example 2: Tenant is registered in a different state from the one where the landlord is registered, which is where the property is situated
If the landlord is registered in the same state as the property, the transaction will be considered to be inside that state, and CGST and SGST will be assessed regardless of where the receiver is registered.
If the renter is not registered in the state where the property is located, he will also not be able to claim the CGST and SGST credit in such circumstances.
For instance, Miss. Helen, who is from Delhi, travels to Mumbai to meet with a customer and stays at the Ramada Hotel. She provides Rs. 35,000 rupees in room rent. Ramada Hotel’s owners are based in Mumbai, where the hotel is also registered, therefore CGST and SGST will be applied in this situation. While Miss Helen is registered in Delhi, these CGST and SGST are levied and assessed in Mumbai.
Miss Helen is unable to claim the input tax credit for the GST she paid since CGST and SGST from different state which is Mumbai, and not the one in which she is registered, which Mumbai (have been registered).
Only the IGST can be credited in cases of transactions involving various states; CGST and SGST cannot be levied so as to rule out these confusions and problems.
Example 3: Is it possible to register the landlord in a different state?
Yes, a landlord may also register in another state. The Landlord should or need not be registered in the state which is same as where the Property is situated.
The mere fact that the landlord has an immovable property that is rented out in another state does not imply that he is providing services from that location and is thus exempt from the requirement to register for GST in that state.He might choose to register for GST from a different state or inside the same state.
IGST will be levied if the landlord is registered in a state other than the one where the rental or residential property is located. If he is in the same state, then SGST and CGST would apply.
In India, GST is applicable for renting of residential properties if the monthly rental amount is above Rs. 20,000. If the rental amount is below this threshold, GST is not applicable. However, if the property owner is renting out a commercial property or a property for business purposes, GST is applicable irrespective of the rental amount. If you are a property owner and need guidance on GST registration and compliance, Kanakkupillai can help.
Kanakkupillai is a leading company that offers GST registration process and compliance services to help property owners in India. With their expertise, property owners can ensure that they are following the right procedures and complying with GST regulations. They can help property owners register for GST, file GST returns, and maintain proper records to avoid any penalties or legal issues.
FAQ on GST Registration
The fees for GST registration of business can sign up for free through the GST Registration Portal. The whole process is done online for free.
SGST for state GST or SGST applies to intrastate sales of goods and services, per the SGST Act. It is administered by each state's government. Only SGST liability can be offset by SGST or IGST input tax credit.
GSTIN or Goods and Service Tax Identification number is a 15 digit number which is assigned to the applicant or businesses when it is successfully registered under GST.
ARN in GST Registration or Application Reference Number is generated once the submission of the application is successful to the official GST servers.
PAN card mandatory for registering GST - The short answer is "yes," PAN cards are required for GST filing. Except for TDS registration, which can be done with a TAN, GST registration cannot begin without a PAN card.
The threshold limit for GST registration if your company's annual sales are more than 40 lakhs (20 lakhs for north-eastern and hill states), you must register as a regular taxable person and pay taxes. A minimum of 20 lakhs is required from service providers (10 lakhs in northeastern and hill regions).
To get a GST number entire GST registration process, including receiving the GST number, takes 7 to 10 working days.
No, current account is not required for a company to register for GST.
Yes, get multiple GST registrations within a state. The company may file for as many GST registrations as desired within a state. For ease of doing business, the process of holding multiple GST registrations only for different industries within a state has been eliminated.
If the GST application is rejected, you will have the opportunity to respond to the rejection notice. However, you would need to wait for a final rejection, which will take about 10 days, if you wanted to submit a fresh application.