The Goods and Services Tax (GST) Act was implemented in 2017. With this, came changes in the taxation of the rental income. The GST law in India treats renting of commercial as well as residential property as a supply of service if the premises are being used for commercial purposes and thus, GST is levied on this service. In this guide, we will focus on GST on rent on property, calculation of GST on rented properties and properties exempted from GST.
What is GST on rent?
This tax is calculated on the basis of the rent charged to the tenant for an immovable property. This is termed as supply of service, thus attracting a GST of 18% on rental income earned by landlords. The GST is included in the total rent amount. The landlord pays this tax on behalf of the tenant. Charging of GST for rent differs between commercial and residential properties. While residential properties don’t need to pay GST, one has to pay GST while renting commercial properties. Both tenants and landlords have to fulfil their GST responsibilities. As the landlord earns the rental income he has to pay the GST on the rent received. The tenant who pays rent has to pay GST on the rent he pays. (The GST is part of the rent that the tenant pays and is deposited by the landlord to the IT department).
Tax on rental income before implementation of GST
Before implementation of GST, the landlord would pay service tax on the rental income if the total taxable income was more than Rs 10 lakh per annum. Similar to GST, service tax of 15% was applicable only to commercial properties or residential properties that were let out for commercial purposes. This was not valid for rented residential properties.
GST on rent of residential property
GST is not applicable on rental income from residential property that is rented out on personal capacity and used as a residence. But, if the same property is rented out to a commercial entity then it will attract GST.
Also read all about GST on real estate
GST on renting of commercial property
Mentioned in detail all about GST on renting of commercial property projects.
How much rent is exempted from GST?
In case the landlord is a GST-registered, 18% GST on rent will be applicable. GST does not apply in case the landlord is not GST-registered.
How to calculate GST on rented properties?
A landlord has to pay 18% GST on the rent received from the tenant (for rented properties that command GST). It is recovered as 9% Central Goods and Services Tax (CGST) and 9% State Goods and Services Tax (SGST).
GST to be paid = (Rent x 18)/100
Suppose Rohan receives Rs 50,000 as rent for commercial property then the GST to be paid on this is
GST= 50,000 x 18/100 = Rs 9,000
How to pay GST on rental income?
In case GST on rental income is applicable, the landlord will have to register himself and pay tax.
Input tax credit on GST on rent
According to the new rule, a GST-registered tenant will have to pay GST on rent under the reverse change mechanism and then, claim input tax credit (ITC) on the payment made. However, Section 17(5)(g) of the Central Goods and Services Tax Act does not allow input tax credit of GST paid for any services for ‘personal consumption’. It is only applicable in case on supplies for ‘business purposes’.
ITC on repairs and renovation of property
Section 17(5) of the CGST Act, which lists scenarios in which ITC can and cannot be claimed, established that the GST paid on repairs and renovation of the property is allowed as ITC as long as it is not capitalised.
Note that GST (ITC) can be claimed for using rental services for commercial use. Thus, if a building’s construction is important for renting, then this can be classified under the ‘plant’ with an exception to Section 17(5)(d) of the CGST Act.
Note that the tenant in order to claim the ITC has to ensure that the GST charged has been deposited with the government.
Who should register under GST if the property is rented out to businesses?
If you are renting out a property to a business, the annual turnover actually tells if you should register under GST.
- Businesses whose annual income exceed Rs 20 lakh have to mandatorily register under GST. This is true even if part of the company revenue comes from exempted business sources.
- For an individual service provider, the threshold is Rs 20 lakh per annum while it is Rs 40 lakh for businesses across the country, barring the northeastern states (where the limit is set at Rs 20 lakh).
What will be the place of supply for charging GST?
Tax under the GST is levied through three components: CGST, SGST and IGST. While same-state transactions attact the central tax, the SGST is applicable on inter-state transactions.
| Component | GST type | Example |
| If the landlord and the rented property are registered in the same location | 9% CGST and 9% SGST will be charged | Mohan Pathak has registered in Maharashtra and rents property in Maharashtra |
| If the landlord and the rented property are registered in different locations | The place of supply will be where the property is located. The service will be considered interstate supply and 18% IGST will be applicable.
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Mohan Pathak (registered in Maharashtra) rents property in Gujarat. |
| If the landlord is registered in the same state where the property is, but the tenant is registered in a different state | 9% CGST and 9% SGST will be charged; tenant can’t claim input tax credit.
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Mohan Pathak (registered in Maharashtra), property is in Maharashtra and the tenant is registered in n Gujarat |
GST on rent: Impact on rental housing
The decision may hinder the expansion of rental real estate in India by increasing the tax burden on businesses that rent out residential properties to be used as guest houses and accommodations for their employees, says Vivek Rathi, director-research, Knight Frank India.
“If someone pays a monthly rent of Rs 1 lakh, the property value would be in the range to Rs 5 crore-Rs 6 crore. The GST, which will be around Rs 18,000, will burn a hole in the pocket of the tenant and eventually, the property owner, as the tenant may want to negotiate the rent. That means there would be a lesser number of people coming forward to provide properties for rental, as their rental income might be adversely impacted. This may also impact luxury housing demand and projects, as investors may not want to invest,” Pankaj Kapoor, founder and MD of Liases Foras, was quoted by the media as saying.
Experts are of the view that the move will be highly detrimental to the government’s stated position of rental housing promotion in India. On one hand, it will increase cost and compliance for companies. On the other, it may also result in revenue loss for the government.
How so?
To avoid paying the GST, companies would prefer to rent the premises in the name of their employees — who will not be GST-registered — in place of having their names on the rent lease.
The move to impose 18% GST will also have an adverse impact on the co-living segment in the country. Most co-living operators rent out resident homes from individual owners and use those as student accommodations. Since, in a majority of cases, they are GST-registered, the application of 18% GST will eat into their already negligible profit margins.
Know that salaried individuals are neither liable to register under the GST nor have to pay the 18% tax on the rent they pay to their landlords.
GST on rent vs GST on rental income
Note that GST on rent and GST on rental income are different. GST on rental income is applicable when a landlord receives an annual rent of Rs 20 lakh, and effectively becomes liable to pay GST on rental income.
GST on rent, on the other hand, is the tax liability on the tenant if they are a GST-registered entity, and using a residential property for business purposes. In simpler terms, GST on rental income is paid by the landlord while the GST on rent is paid by the tenant.
This also means that in a scenario where a residential property is let out for business purposes to a GST-registered person, and where the GST-registered landlord is earning an annual rental rent of Rs 20 lakh, the landlord as well as the tenant will have to pay 18% GST, taking their mutual GST liability at 36%.
Know all about HRA exemption on rent paid. Also know about rent receipt & its role in saving tax
Applicability of GST on rent
Applicability of GST on rent is determined by two factors:
Property type
GST on rent is applicable to properties rented for commercial/business purposes. Even if a residential property is rented for commercial/business purposes, the rental income and rent paid both can be liable for tax under the GST regime. It is important to mention here that GST liability would remain intact as long as you have given your property on rent for business, irrespective of the nature of its usage.
If a landlord has rented his residential property for residential purposes to an individual, not registered under the GST, the GST on rental income would not be applicable.
Check out the difference between Leave and license agreement
Rental income threshold under GST
Under the GST regime, the need to pay GST on rent arises when you get an annual rental income of Rs 20 lakh or more from your service providing business. Earlier, this threshold was kept at Rs 10 lakh. In case you are a business, the limit is Rs 40 lakh per annum.
Check out our guide on GST search and GST verification
GST on rent vs GST on rental income
| GST on rent | GST on rental income |
| GST on rent is the tax liability on the tenant if they are a GST-registered entity, and using a residential property for business purposes. | GST on rental income is applicable when a landlord receives an annual rent of Rs 20 lakh, and effectively becomes liable to pay GST on rental income.
|
| GST on rent is paid by the tenant.
|
GST on rental income is paid by the landlord |
How to pay GST on rent?
In case GST on rental income is applicable, the landlord will have to register himself and pay tax.
Also read all about TDS on house rent, under the income tax laws.
GST on rent applicable
Mentioned are various points on which GST is applicable.
GST applies if electricity charges added to rent, maintenance fee
When electricity charges are bundles with rent or maintenance fee imposed by real estate developers, mall operators or airport operators, such a service qualifies as a composite supply under the Goods and Services Tax (GST) regime. As a result of this, such a service would attract 18% GST, the Central Board of Indirect Taxes and Customs (CBIC) has clarified. Even if electricity is billed separately, the supplies will constitute a composite supply, it added. The new clarification by the CBIC means tenants of commercial properties will have to pay 18% GST on electricity charges if the service is bundled with renting of property or its maintenance charge. According to tax experts, this would result in increased cost of renting for tenants as landlords would factor in a higher rate while offering the supply.
One-time premium received on allotment of completed commercial units to attract 18% GST: AAR
Developers receiving a one-time premium on allotment of commercial units of building will have to pay goods and services tax (GST) at 18%, the Gujarat Authority for Advance Ruling has said. Such a supply is taxable under Section 7 of the CGST Act, 2017, the AAR added. The AAR also clarified that leasing of commercial property in lieu of a one-time premium or an annual premium would quality as “supply” as prescribed under Section 7(1) of the CGST Act.
GST would apply if a rented residential building is sublet as hostel: AAAR
Renting residential properties to business entities that sublet them to educational institutions will attract GST on rent, the Andhra Pradesh Appellate Authority for Advance Rulings (AAAR) has ruled. This arrangement is not exempted from paying the goods and services tax under the notification issued by the Centre in July 2022. The notification provides relief to owners of residentials properties who rent properties for residential use from paying the GST.
The exemption to families or individuals was on the grounds that the transaction of supply ends with the recipient. In the case of commercial entities, the tenant will not use the rented property as ‘residence’ but will sub-lease or rent it out to others, the order explained.
To enjoy the relief under the new government notification, the arrangement must meet the twin requirements of ‘renting of residential dwelling’ for ‘use as residence’, it explained further.
TDS on rent
While a tenant pays rent and GST on rent to the owner, he has to deduct 10% TDS if rent exceeds Rs 2.4 lakh per year. Note that TDS has to be deducted for both commercial and residential properties. Also, no GST will be levied on the TDS.
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Finally, one has to be clear about the situations when GST on rent is applicable. For example, residential properties let out for commercial purposes attract an 18% GST. Residential properties rented out on personal capacity and being used as place of residence does not attract any GST. On the other hand, small and medium companies with an annual income of less than Rs 20 lakh are exempted from GST.
FAQs
What is the rate of GST on rent?
The rate of GST on rent is 18%.
Do landlords have to pay tax on rent before GST?
Landlords had to pay service tax on rent before the GST era.
Who pays the GST on rent, landlord or tenant?
The landlord collects the GST from the tenant. The tenant on the other hand deducts 10% TDS from the rent in case the annual rent amount exceeds Rs 2.40 lakh.
Is input tax credit allowed on repairs done for a rented property?
Yes, input tax credit allowed on repairs done for a rented property as long as this is not done to generate further income.
Do I have to pay GST on rental income if I have rented a property for residential purposes?
No, if you rent a property for residential purposes, it is exempted from GST. However, your tenant may have to pay 18% GST if he is a GST-registered person.
Is rent considered as a taxable supply of services or goods under GST?
Rent is considered as a taxable supply of services under GST.
What is the GST rate on income from commercial properties?
The GST rate on rent is 18% of the monthly rental income in case the annual income is Rs 20 lakh or more.
What is the GST rate on rent from commercial properties if income is less than Rs 20 lakh?
GST is not applicable if rental income is less than Rs 20 lakh in a year.
Is TDS on rent the same as GST on rent?
No, the two taxes are different.
Which are the states where the threshold for GST registration is Rs 10 lakh?
The states where the threshold for GST registration is Rs 10 lakh include Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, Uttarakhand.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
