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GST on Renting of Immovable Property

Overview of GST on renting out a property

According to the GST Act, renting out an immovable property would be treated as a supply of services.

GST on Rent is taxed @ 18% of the Rent paid. The threshold limit for applicability of GST for those providing only services is Rs.20 lakh.

Commercial properties such as offices or retail space on lease earlier attracted GST, the lease of residential properties by companies or individuals did not attract any tax. Liability to pay GST did not arise as it was specifically exempted vide CGST (Rate) Notification no. 12/2017 dated 28.06.2017.

As per 47th GST Council Meeting, renting an Residential property is considered a supply of service and it attracts GST.

From 18th July 2022 onward GST will be applicable if the residential property is rented out for commercial purpose to a registered person under GST.

Important points to be considered for renting a residential property for commercial purpose:

  • If both Landlord and Tenant are registered under GST: It will be shown as outward supplies liable to be taxed under the reverse charge mechanism. Liability to pay GST is on the recipient(tenant/lessee) hence no additional GST liability.
  • If Landlord is not registered and Tenant is registered under GST: Liability to pay GST is on the recipient(tenant/lessee) hence no additional GST liability or any compliance under GST.
  • If Landlord is registered and Tenant is not registered under GST: No GST liability.
  • If both Landlord and Tenant is not registered under GST: No GST liability.
  • The exemption given earlier has been withdrawn vide CGST(Rate) Notification no. 04/2022 dated 13.07.2022.
  • As per notifications 05/2022 (Central Tax Rate) dated 13 July 2022, ‘Service by way of renting of a residential property to a registered person is also taxable.

We will under this provision with some examples:

Example-1 When a Registered person takes a residential property for the purpose of residence on rent for employees it will be considered as an item of business expenditure. GST will be paid under RCM and the ITC of the GST paid under reverse charge can be claimed.

Example-2 When a composition dealer who is registered under GST takes a residential property for the purpose of residence on rent then it will be considered as an item of business expenditure. GST will be paid under RCM but the ITC of the GST paid under reverse charge cannot be claimed as per section  10(4) by a composition dealer.

Example-3 When an individual takes a residential property under his proprietorship concern which is registered under GST but for the purpose of residence on rent. GST will be paid under RCM but the ITC of the GST paid under reverse charge cannot be claimed as it is blocked per section 17(1) due to personal expenditure.

Example-4 When a residential property is taken by a registered person on rent for commercial purpose it will be treated at par with the commercial unit. If the landlord is unregistered then GST shall not be levied and paid by either the landlord or the tenant. If the landlord is registered GST will be charged on forward charge basis and the recipient can take the ITC of the same.

Notification 05/2022 dated 13th July 2022 

Sr. No. Category of Supply of Services Supplier of service Recipient of Service
5AA Service by way of renting of a residential property to a registered person Any person Any registered person

 

Notification 04/2022 dated 13th July 2022 

Sr. No. HSN/SAC Description of services Rate Conditions
12. Heading 9963 or Heading 9972 Services by way of renting of residential property for use as a residence  except where the residential property is rented to a registered person Nil Nil

 

Download the official notifications from below link:

   

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