GST on Rent
Introducing the Goods and Services Tax (GST) in India brought about a significant transformation in the tax landscape, affecting various sectors, including real estate. While the focus has often been on the impact of GST on property purchases, the implications of this unified tax regime on rental properties are equally noteworthy. This article explores the effects of GST on both residential and commercial rental properties in India, shedding light on the provisions, exemptions, and changes in the tax system.
Taxation on Rent Payments: Pre-GST Era
Before the implementation of GST, property owners were required to register to pay service tax if the annual income generated from all rented properties exceeded Rs 10 lakhs. This primarily applied to commercial properties and residential properties used for commercial purposes. If the annual income from rental units was below Rs 10 lakhs, service tax was not applicable. In the pre-GST era, commercial properties earning more than Rs 10 lakhs in rent were subject to a 15 percent service tax.
GST on Rent Payments
The GST Act introduced a new approach to the taxation of rental income. It classified renting out a commercial property or a property used for commercial purposes as a supply of services, making GST applicable to properties leased or rented out for commercial use. This GST would be imposed on various commercial, industrial, and residential properties engaged in business activities.
Revised Threshold for GST Applicability
After implementing the unified GST system, the Central government revised the threshold limit for GST applicability on rental income. Under the new regime, 18 percent GST is levied on properties with an annual rental income exceeding Rs 20 lakhs, compared to the previous Rs 10 lakhs threshold. This means that if a shop in, for example, Malviya Nagar is rented out for Rs 1 lakh per month or Rs 12 lakhs per annum, no GST would apply to the property owner.
One of the real estate agents based in Delhi, comments on the impact of GST, stating, “The impact of GST on rental properties is still in its early stages. Increasing the tax applicability limit to Rs 20 lakh per annum was a positive move. Many shops located in residential areas have benefited from this revision. The real impact of GST will be more pronounced for large corporations or businesses with substantial revenues.”
Exemptions from GST on Rental Income
- Residential Properties for Residential Purposes: Rental income generated from residential properties rented for residential purposes is exempt from GST. This means that if you rent a property solely for residential use, you are not subject to GST on the rental income.
- Properties Rented by Charitable or Religious Trusts: Rental income from properties leased out for charitable and religious purposes is also exempt from GST. However, certain conditions must be met for this exemption to apply:
- Rent for a room should be less than Rs 1,000 per day.
- Rent for a shop should be less than Rs 10,000 per month.
- Rent for a community hall or an open space should be less than Rs 10,000 per day.
Conclusion
The implementation of GST in India has not spared the rental property market. While the taxation of rental income has undergone significant changes, the revised threshold for GST applicability and exemptions for residential and charitable or religious purposes have provided some relief to property owners. As the impact of GST on rental properties continues to evolve, property owners and businesses need to stay informed and adapt to the changing tax landscape.
