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The implementation of the Goods and Services Tax (GST) in 2017 brought about a significant transformation in the taxation landscape, particularly in relation to rental income. Renting a property, whether it's residential or commercial, is now considered a taxable supply of service under GST. Therefore, understanding the nuances of GST on rent becomes crucial. This article explores the tax rates and provisions applicable to GST on commercial property rent, GST on rent of residential property, calculation of GST on rented properties, ITC for GST on rent, etc.
Goods and Services Act, or GST, was first introduced in 2017. The introduction of GST brought a lot of changes in the taxation system of rental income. Under GST, renting a property is considered a supply of service that is taxable, and both tenants and landlords have to fulfill their tax obligations. Rental income earned by the landlords attracts GST. The tax is calculated as a percentage of the rental income received. The tenants who pay the rent also have to pay GST on the rent amount. This tax is included in the total rent and deposited to the tax department by the landlords on behalf of the tenant.
Before the introduction of GST, landlords were required to register themselves under service tax if the value of total taxable services, including rental income, exceeds Rs.10 lakhs per annum.
Service tax on rental income was only applicable to let out commercial properties or residential properties used for commercial purposes. While commercial properties attracted a service tax of @15%, rental income from residential properties does not attract a service tax.
As per the GST Act, renting out an immovable property is treated as a supply of service. However, GST is applicable only on -
Note: Rental income on letting out of a residential property is not considered a supply of services and, therefore, is exempt from GST.
GST is not applicable if a residential property is rented out to a registered person in their personal capacity and for use as their own residence. In other words, if a residential property is rented out, that too for residential purposes, then the rental income from such property does not attract GST.
However, it is important to note that this exemption only applies when the property is rented out in a personal capacity and used as a residence. If the same property is rented for commercial purposes or to a business entity, it will attract GST.
If any commercial property is rented out, it attracts GST @18% on the taxable value, and the rent is considered a taxable supply of service.
If a registered religious trust or charitable trust manages and owns a religious place that is meant for the public, it is exempt from GST. However, to avail of this exemption, it has to fulfill the following conditions -
GST on rented properties is calculated on the basis of the rent charged to the tenant for the property. The landlord has to pay GST on the rent income received from the tenant. The GST rate on renting an immovable property is 18%.
Therefore, GST on rented-out properties will be -
GST = (Rent x 18%)/100.
Let’s understand this with an example.
Let’s say the rent of a rented commercial property is Rs.30,000 per month. Then, the GST will be calculated as follows -
GST = Rs.30,000 x 18% = Rs.5400
So, the landlord will have to pay Rs.5400 as GST on the rent of Rs.30,000 per month.
When GST is applicable on rent, the tenant paying the rent is entitled to claim an Input Tax Credit if they are registered under the GST Act. The taxpayer can claim a credit of the GST paid on the amount of rent.
However, ITC can be claimed only if the property is a commercial property or used for commercial purposes. At the same time, if the rented property is put to personal use, ITC can be claimed.
Also, the GST charged should be deposited with the government to be able to claim ITC. Therefore, the tenants must make sure that the GST collected has been deposited with the government before claiming ITC.
ITC on Repair and Renovation
It is not allowed to claim ITC on the repairs and renovation of any immovable property that is meant for renting out.
However, if the landlord undertakes any construction, repair, or renovation of a property that is rented, he/she can claim ITC on the GST paid.
Now that you have learned about the GST on rent, you might be wondering how to calculate and pay the tax on your rental income. Whether you are a landlord or a tenant, you need to comply with the GST provisions and avoid any penalties or interest. Don’t worry, we have got you covered. Tax2win can help you with GST registration, GST and ITR filing, and payment. Contact us and get expert guidance on any Tax related matter,
A residential property is a house or a property that is used or intended to be used for residential purposes by a family or an individual. For the purposes of GST, residential property means a house, flat, or property that is rented to anyone who intends to use it as a place of residence and is exempt from GST.
No, commercial rent is not exempt from GST. Under the GST Act, leasing or renting of commercial property, including shops, offices, or warehouses, falls under the category of supply of services and attracts GST @18%. However, small taxpayers who have an annual turnover of less than Rs.20 lakhs are exempted from GST on rental income.
Yes, rent earned from letting out residential property or to an individual who uses the property as a place of residence is free from GST.
