Who has to pay 18% GST on residential rentals?

On July 13, 2022, the Union Finance Ministry, headed by Nirmala Sitharaman’s Revenue Department, issued a central tax notification gazette in which it placed residential rentals under GST from 18 July 2022 with immediate effect.

The new notification amended the previous order of June 2017, bringing residential accommodation rented to a registered person under payment of the 18% GST tax.

However, no one living in a rented apartment who does not have a registered GST number will have to pay 18% GST. This means that a salaried family staying in a rented house does not need to pay 18% GST on rentals to the government if they are not a registered person.

As per the new July 2022 notification, when residential accommodation is rented out to a GST registrant, it would be subject to GST at the rate of 18%. In addition, the GST must be paid by the tenant (occupant) to the credit of the government under the reverse charge mechanism (RCM).

However, the 18% GST on residential rentals depends on a case-by-case basis. For example, builders house tenants of redevelopment projects in privately rented apartments. In this, the case where the builders will have to bear the GST of 18% is debatable. Many stakeholders feel that the notification needs to be studied properly in order to understand its implications accordingly.

Who falls under the GST?

With this amendment, the lessee who rents out real estate for the purposes of a guest house or for making available to his employee or directors would be subject to tax. Supposedly, if a particular company takes a few rental apartments for their employee, then now, under the new requirement, they must also show payment of 18% GST on rentals to the government when filing returns.

Who gets a GST number?

Anyone who makes a supply of services over 20 Lakhs and a supply of goods over 40 Lakhs is subject to compulsory registration. A few states have different registration thresholds.

What is the fear of this new amendment?

An unexpected result of this amendment is that an individual or landlord who is registered for GST and who rented residential property for their “personal use” and not as a business expense, would also be subject to tax. . Stakeholders want immediate government action.

What does the industry think of residential rentals subject to the 18% GST?

Dr. Niranajn Hiranandani – Vice President – NAREDCO said, “Residential rental yield is low at only 2% to 3% compared to commercial rental yield which is very attractive at 8% to 10%. 18% GST on Residential Rentals is harmful as it will hurt investment in residential properties It will apply to the person who may be registered under the GST Act and therefore the burden of paying the tax falls on the tenant, not the landlord. A high GST will also discourage corporations from offering more rental accommodation to their employees, which will impact institutional rental activity.”

Whereas, Vivek Rathi – Research Director at Knight Frank India commented, “This will have a significant impact on the rental property market in India. The decision may hamper the expansion of rental property in India by increasing the tax burden on businesses that rent residential properties to use as accommodation and bed and breakfast for their employees.”

Rathi further added that the residential rental product costs the consumer around 2.5% per year as the rental yield and an additional cost of around 0.45% of the market value of the property will be an additional charge. Initially, landlords and tenants may agree to share the load. However, eventually, the tenant will have to bear the burden.

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About Michael B. Billingsley

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