Impact of GST on rental income from commercial property


Read on to know the GST rates applicable for rent earned from commercial property

The Goods and Services Tax (GST) introduced in India in 2017, marked a new chapter in the tax system in the country, making India a single market from the point of view of levy of taxes. This new tax regime is altering the way taxes are calculated in many industries and in various scenarios. We take a look at how the new tax system impacts rental income from commercial property.

Prior to implementation of GST, commercial properties that were let-out attracted service tax and the same applied to a residential properties when used for commercial or business purposes. Service tax was estimated at 15% of the rent for such commercial properties.

 

GST impact on rent from commercial property

There are two things to note here. In case a residential property is rented out, there will be no GST on that. Any other kind of renting, like commercial or industrial, would attract GST at the rate of 18 percent as letting-out a property would be treated as a supply of service.

 

Impact of GST on rent 

If the rental income is more than Rs 20 lakh per annum, then the landlord, which may be any entity like companies, will have to take a registration with GST Network (GSTN) and pay the GST on the rental income. Before GST came into effect, the threshold limit was Rs 10 lakh. After GST has been introduced, the same limit has been kept at Rs 20 lakh. This means that the landlords have a leeway of Rs 10 lakh under the GST regime.

 

Calculation of GST when property is on rent for commercial purposes and exemptions

The GST rate has been kept at 18 per cent for commercial property on the taxable value, where the leasing activity would be considered akin to supply of services. However, this rule will not apply to charitable or religious trusts which own and manage a religious place being used by common people. But this exemption will apply only in cases where the rent of the rooms is less than Rs 1000/day, the rent of shops meant for business purpose is up to Rs 10,000/month and in cases where the community hall is let out for up to Rs 10,000/day.

 

The current provisions for tax deduction on income tax for the rented property

The person or the company that has taken a property on rent has to pay the GST to the person or the company that has given out the property on rent. The company or person who is paying the GST has to deduct income tax at source at the rate of 10 percent. This is called TDS. There will be no GST applicable on the TDS.

 

Reverse charge and forward charge mechanism

For immovable properties, GST on rent charged by the government or local authority to a registered person, will be under the Reverse Charge Mechanism. When the property is rented to an unregistered person, the government would themselves deduct GST and this is called the forward charge mechanism.

FAQ

Does renting out a residential property attract GST now?

When you rent out a residential property for residential purpose, it is exempt from GST. However, if you rent it out for commercial purposes, it will attract GST.

What is the threshold limit for applicability of GST?

The threshold limit for applicability of GST has increased from Rs 10 lakhs to Rs 20 lakhs after 2017.

Who should register and pay GST when the property is rented to businesses?

If you have let out a property and are earning more than Rs 20 lakhs, then, you will have to register under the GST and pay taxes.

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