18% GST on Rent of Residential Property
After the recent 47th GST Council recommendation and as per Notification No. 05/2022-Central Tax Rate dated 13th July 2022 the government of India has introduced 18% GST on Rent of residential property irrespective of its usage w.e.f 18th July 2022. Most interestingly, the liability to pay GST on Rent now lies with the tenant under Reverse Charge Mechanism(RCM) if he is a registered person.
If a company or a registered person takes a residential property on rent for their own residential purposes then the company or the registered person shall have to pay GST on such rent even if it is used for residential purposes. However, they are eligible to claim an input tax credit (ITC) on the same.
Until the 47th GST Council meeting, there was no GST on Residential property whatsoever. GST on rent of residential property was exempt from GST liability. But now 18th July 2022 onwards, a GST-registered tenant is liable to pay GST on the rental amount @18% under RCM.
Now take a look at the below 47th GST Council meeting resolution:
So, from the above synopsis of the 47th GST Council meeting you can see that the exemption of GST on Rent of residential property has been withdrawn w.e.f 18.07.2022. However there is no change in GST on Commercial property rent.
GST on Rent of Residential Property at a glance
- The 47th GST Council meeting has withdrawn the earlier exemption of charging GST on Residential property;
- Renting of residential property is now a taxable supply of service applicable from 18.07.2022;
- GST on rental amount shall be applicable only when the tenant is a registered person;
- The liability to pay GST on rent lies on the service recipient on RCM basis;
- The Landlord/owner of immovable property is not required to discharge GST liability even if he is a registered person;
- GST on rent is applicable on Reverse Charge Mechanism basis;
- There is no basic exemption limit for charging GST @18% under RCM. It is applicable even if the monthly rent amount is ₹1;
- There is no significance in how the residential property is used. It may be used either for dwelling purposes or for commercial purposes. GST shall be applicable in both cases;
- If a landlord has rented his residential property for residential purposes to an unregistered individual, GST on rental income shall not be applicable;
- There is no change in GST on Commercial property. It is still liable to GST beyond the annual rent of ₹20 Lakh.
GST on Renting of Residential Property ?
Yes, GST on renting of immovable property is applicable subject to the fulfilment of certain conditions. They are as follows.
- If immovable property is used for commercial purpose:
If the property is used for commercial purposes, GST shall be applicable on the rental amount under forwarding charge, subject to the condition that the annual lease rental amount exceeds ₹20 Lakhs. In this case, the landlord is liable to pay GST under the forwarding charge as a registered person.
So for determining GST on renting immovable property, such property’s nature plays a significant role. If it is a commercial property GST liability falls on the landlord only.
- If immovable property is used for residential purpose:
Until 17th July 2022, GST on renting immovable property in the form of residential property was not liable for GST at all. But from 18thJuly 2022, GST is applicable on renting of residential property if it is used by a registered tenant and he shall claim input tax credit accordingly.
This means if you are a registered person under GST, you have to pay GST@ 18% under RCM even though you took this property on lease or rent for your own dwelling purposes.
So, here registration under GST plays a significant role in determining GST liability for residential property whether used for residential purposes or for commercial purposes.
If you are not a registered person, you are not required to pay any GST on the rent payable to the landlord. On the other hand, Govt. has kept away the landlords whether registered or unregistered, from paying GST on rent received by them.
Download Income Tax Automatic Excel Calculator FY 2022-23 from below link
You may also Download from below link
GST on Commercial Property Rent?
Yes, GST on commercial property rent is not a new thing. GST is applicable on commercial property rent for quite some time now. As per the Notification No-12/2017, Dated 28.06.2017, GST was applicable for commercial property rent under forward charge and the landlord is liable to discharge the GST liability on rent received.
However, there is an exception to this rule. GST on commercial property rent shall be applicable only when the annual rent receipt is more than ₹20 Lakhs. So, there is a threshold limit for commercial property rent beyond which GST liability shall be discharged by the Landlord on the forward charge mechanism.
Is GST applicable on Rent?
Yes, GST is applicable on the rent of both commercial and residential properties. As per the latest provision, now both property has come under the purview of GST.
| Type of Property | Use of Property | Is GST applicable | Who is liable to pay GST and How |
|---|---|---|---|
| Commercial | Commercial | Yes, 18% | Landlord under Forward Charge |
| Residential property | Commercial | Yes, 18% | Tenant under RCM |
| Residential Property | Residential | No, if Tenant is not Registered | No GST |
| Residential Property | Residential | Yes, If Tenant is Registered | Tenant under RCM |
Therefore, from the above, you can clearly see that if you are Registered under GST, even if you take a residential property for your dwelling purpose, you are liable to pay GST on the rent payable to the landlord. However, you shall pay GST under RCM to the GOI and not to the landlord.
GST on Rent paid to Unregistered Person?
In case of Residential Property: With the introduction of recent GST on residential property, GST on rent in no way shall be payable to an unregistered person. Because, in this case of residential property, the liability to pay GST lies with the Tenant/service recipient itself.
So, it does not matter whether you are a registered or unregistered person, GST shall not be payable to you i.e. the landlord. The rental amount only shall be payable to the unregistered person.
In case of Commercial property: An unregistered person is not authorised to collect GST on commercial property rent. As per the provisions, GST on commercial property rent shall be liable to GST only when the annual rental amount exceeds ₹20 Lakhs.
Once, the annual rental amount exceeds the threshold limit of ₹20 Lakhs, the landlord must register himself under GST. So, you should not pay any GST to an unregistered person.
Comparison of GST on Rent of Commercial and Residential Property
GST on Commercial Property
- Notification No-12/2017, Dated 28.06.2017;
- Applicable GST Rate is 18%;
- GST is payable by the Landlord;
- GST is paid under Forward Charge;
- Basic exemption limit of ₹20 Lakhs;
- Applicability of GST depends on the Landlord i.e. if he is registered person, GST is applicable else not;
- Property is used solely for commercial purpose.
GST on Residential Property
- Notification No. 05/2022-Central Tax Rate dated 18.07.2022;
- Applicable GST Rate is 18%;
- GST is payable by the Tenant;
- GST is paid under Reverse Charge;
- No such basic exemption limit available;
- Applicability of GST depends on the Tenant i.e. if he is registered person, GST is applicable else not;
- Property may be used either for residential or commercial purpose.
Now let us check some FAQs regarding GST applicability on rent.
Who pays GST landlord or tenant?
Until 17th July 2022, GST was payable only by the landlord of course for commercial property subject to the condition that annual rent must exceed ₹20 Lakhs.
However, from 18th July 2022, GST is also payable exclusively by the registered tenant for using a residential property for whatever purpose may be.
So, it is definitely going to hurt the pocket of the sole proprietorship business owners. Since they are registered and also using residential property either for dwelling purposes or for business purposes.
How do I avoid GST on rent?
Rather than avoiding it may be read as ” how can I get an exemption?“. Yes, if you are an unregistered person and have taken a residential property for dwelling purposes, you are exempt from paying GST on the monthly rental amount.
Further, in case of renting commercial property, whether you are registered or unregistered under GST regime, if the annual rent amount does not exceed ₹20 Lakhs, you are exempted to pay GST on the amount of rent received by you.
GST on Commercial Rent?
Yes, GST on Commercial Property Rent is applicable from the very first day of the introduction of GST in July 2017. As this is considered a taxable supply of service and GST is applicable accordingly.
How much GST is applicable on rent?
Currently applicable GST on rent is 18%. Whatever, maybe the purpose of using the property, applicable GST rate shall remain the same. However, for commercial property, there is a threshold limit of ₹20 Lakhs, beyond which GST shall be applicable on the rental amount.
Also, for residential property, there is no threshold limit. GST shall be applicable on fulfilling certain conditions like if the tenant is a registered person, GST shall be payable by the tenant itself on RCM maybe it is using it for residential purposes as well.
Most, interestingly, the use of the residential property does not play any significant role anymore. If a residential property is used by an unregistered person, GST shall not be applicable.
GST on Office Rent?
Yes, there is GST on office rent as well. As I mentioned already that providing your immovable property for official/commercial purposes, comes under the purview of providing a taxable supply of service and hence GST is applicable on office rent also.
However, in this case, the applicability of GST depends on the basic threshold limit of ₹20 Lakhs. If annual rent is lower than ₹20 Lakhs, there is no question of GST whatsoever even if the property is given on rent for commercial/office purposes.
When to charge GST on rent?
The decision of when to charge GST on rent solely depends on two following factors such as Type of property and the amount of rent. Let me elaborate a little bit.
If the property is commercial in nature– GST shall be charged upfront along with the rental amount subject to the condition that the amount of annual rent excluding GST exceeds ₹20 Lakhs. If it does not meet this criteria, there is no applicability of GST on this rent.
If the property is residential in nature– Earlier there was no GST applicable on residential property. But the new proposal of the GST council has made even the rent receipts from the residential property taxable under the purview of GST.
But this is also subject to the condition that such residential property is used by a GST-registered person. And there is a twist that GST is to be paid by the tenant itself under RCM and he can avail input tax credit on such GST payment.
So, what we can see is that it is the liability of the service recipient now and not on the landlord for residential properties as per the recommendation of the GST council though input tax credit has been allowed on such GST payments.
This is also to keep in mind that if this property is used for residential purposes by an unregistered person like you and me, there is no applicability of GST on such rent.
Do I have to pay GST on rental income if I have rented a property for residential purposes?
The answer is a big “NO”. Because for residential properties the liability to pay GST lies with the recipient i.e. who takes the property on rent and who pays rent to the landlord and takes input tax credit accordingly.
Thus, what this means is that landlords of residential properties have been kept exempted from paying GST on the rental amount they will receive.
RCM on Rent under GST Notification?
As per Notification No. 05/2022-Central Tax Rate dated 13.07.2022 if a company or a registered person takes a residential property for rent for their own residential purposes then the company or the registered person shall have to pay GST on such rent even if it is used for residential purposes. However, they are eligible to claim an input tax credit (ITC) on the same.
Is rent considered as a taxable supply of services or goods under GST?
Yes, rent is considered a taxable supply of service under GST. From 18.07.2022, both commercial and residential property given on rent shall be considered as a taxable supply of services and GST shall be charged accordingly subject to certain conditions.
