A tenant, who is registered for the GST, is required to pay the 18% goods and services tax for the rental of a residential property, according to the new GST rules effective July 18. The 18% tax on rent paid applies only to GST registered tenants.
Previously, only commercial properties such as offices or retail space rented or leased were subject to the GST. There was no GST on the rent or rental of residential properties by corporations or individuals.
Under the new rules, a GST-registered tenant will be liable to pay the tax under the reverse charge mechanism (RCM). The lessee may claim the GST paid for the input tax credit as a deduction.
Tax will only apply where the renter is registered for GST and required to file GST returns. The owner of the residential property is not required to pay GST.
“If a common salaried person has taken a residential house or apartment to rent or lease, they do not have to pay GST.
However, a GST registrant who engages in a business or profession must incur 18% GST on that rent paid to the landlord,” explained Archit Gupta, Founder and CEO of ClearTax, reported. mint.
A GST registrant providing services from a rented residential property will be required to pay the 18% tax.
Under the GST Act, registrants include individuals and corporations. Registration for the GST is compulsory when a person exercising an activity or profession reaches an annual turnover above the threshold.
The limit under GST law varies depending on the nature and location of the supply. The threshold limit for a registered person providing services alone is Rs 20 lakh in a financial year.
The limit for a goods-only supplier is Rs 40 lakh. However, if the registered entity is located in any of the North Eastern States or Special Category States, the threshold limit is Rs 10 lakh per fiscal year.
Who will have this impact
The new changes, implemented after the 47th GST Council meeting, will impact businesses and professionals who have rented or leased residential properties.
Rent paid by businesses for accommodation rented for use as bed and breakfast or employee residences will now be subject to the 18% GST. This will increase payroll costs for companies that provide free housing to employees.