GST on Rental Property – A Quick guide!

 


GST on Rental Property – A Quick guide! 

Goods & Service Tax implementation in India has crafted a new way to collect indirect taxes from various industries.  The rental industry, is a common income source for many individuals, families or business houses for decades.  In this article, we shall try to simplify the implication of GST on commercial and residential properties.

Pre-GST Era: So before GST came into picture, India had the Service tax regime and accordingly Commercial properties would attract 15% Service tax if the landlord’s total receipts from all his let out properties exceeded Rs 10 Lakhs (Rs 1 Million). Service tax was not applicable to residential properties let out for residential purpose.  If a residential property was let out for commercial purposes (wholly or partly) or to any business entity (irrespective of how it was used) service tax would be applicable.

Post GST: Well the rules haven’t changed much with GST implementation, except for the rates of taxes and the exemption limits.  GST on Rentals today is charged @18% on the Rent value charged (popularly called the Taxable value of service).  The threshold for applicability of GST has been capped at Rs 20 Lakhs (earlier Rs 10 Lakhs under Service tax law).  GST remains exempt for residential properties let out for residential purposes.

Applicability: So, any person or entity earning more that Rs 20 Lakhs annually from renting out of immovable properties to Businesses, must register for GST and pay the taxes.

Computation: For all commercially let out properties, GST is levied on the taxable value and rent is treated as taxable supply of service.  For any charitable or religious trust, operating a place for public purpose, GST is exempt provided, 1.) Room rentals are less than Rs 1,000/- per day, 2.) Shop rentals for businesses are less than Rs 10,001/- per month and 3.) Community halls or open space rentals are less than Rs 10,001/- per day.

Input Tax Credit: GST paid on rentals can be claimed as an ITC can be usually claimed by the tenants for their business provided all criteria for ITC are fulfilled otherwise.

Tax deduction at source for Rental properties:  TDS is deductible by the businesses paying rent, provided the rules on TDS are applicable to them, @10% (AY 2020-21 onwards) if the rental on each property exceeds Rs 2,40,000/- annually.  The TDS will not be deducted on the GST amount, but only the taxable value of rent.

In case of properties let out by governmental bodies to any GST registered business, the GST will be payable under the reverse charge mechanism i.e. the rent payer himself will deposit the GST with the exchequer and in case the property is let out to any unregistered business, the government would themselves deduct GST under a forward charge mechanism.

We trust this article was useful to you.  For any further questions on it or help with your GST compliance, feel free to write to us at info@gjmco.in or Schedule a Call with us today.  Visit us at www.gjmco.in to know more about our services.

 

Thanks & Best regards,

Knowledge Base team

GJM & Co.

Chartered Accountants

www.gjmco.in

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