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GST (Tax) Applicable On Rent Of Residential Properties

A tenant registered under the GST is required to pay Goods and Services Tax at 18 per cent for renting a property, according to the new GST rules effective from July 18.

The 18 per cent tax on rent paid is only applicable to tenants registered under the GST, meaning a GST-registered person who carries out business or profession will incur 18 per cent GST on such rent paid to the owner

Earlier, only commercial properties like offices or retail spaces given on rent or lease attracted GST. There was no GST on the rent or lease of residential properties by corporate houses or individuals.

As per the new rules, a GST-registered tenant will be liable to pay the tax under the reverse charge mechanism (RCM). The tenant can claim the GST paid under Input Tax Credit as a deduction.

The tax will only apply when the tenant is registered under GST and liable to file GST returns. The owner of the property is not responsible to pay the GST.

“If any common salaried person has taken a residential house or flat on rent or lease, they do not have to pay GST. However, a GST-registered person who carries out business or profession must incur 18 per cent GST on rent paid to the owner.

Under the GST law, registered persons include individuals and corporate entities. GST registration is mandatory when a person carrying out business or profession reaches an annual turnover of more than the threshold limit.

The limit under the GST law varies according to the nature and place of supply. The threshold limit for a registered person supplying services alone is ₹ 20 lakh in a financial year.

The limit for a supplier of only goods is ₹ 40 lakh. However, if the registered entity is located in any of the northeastern states or special category states, the threshold limit is ₹ 10 lakh per financial year.

Who Will This Impact

The new changes, implemented after the 47th meeting of the GST Council, will impact the companies and professionals who have taken residential properties on rent or lease.

The rent paid by companies towards the housing properties taken on rent to be used as guest houses or residences for employees will now attract 18 per cent GST. This will increase the employees’ costs for the companies that are offering free accommodation to employees. 

GST will not be applicable on residential units if they are rented out to private persons for personal use.

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