GST on Rent / GST on residential property / GST on commercial property rent
A summary of GST on rent
In this post, we’ll talk about GST on rent, residential property, and commercial property rent, as well as how to calculate GST on rent. We’ll go into detail about each section:
- What is GST on Rent?
- Tax on Rental Income Before GST
- Does renting out a property attract GST?
- GST on Renting of Residential Property
- GST on Renting of Commercial Property
- Who is required to register when the property is rented out to businesses?
- How to calculate GST on rented-out properties?
- What are the ITC provisions when GST is charged on rent?
- FAQ
What is GST on Rent?
The introduction of the Goods and Services Tax (GST) in July 2017 modified how India taxed rental income. Renting a home is now a taxable service under GST, and both landlords and tenants may be required to pay taxes.
Landlords must pay GST on their rental income, calculated as a percentage of the rent. This amount must be paid to the tax authorities regularly—the GST rate changes based on the rental arrangement.
Tenants must also pay GST on the rent, usually included in the total rent amount. The landlord then remits this to the tax authorities on behalf of the tenant.
It’s important to remember that not all rental agreements are subject to GST. The applicability depends on property location, type, and rental purpose.
Tax on Rental Income Before GST
Before GST, landlords needed to register for service tax if their total taxable services, including rental income from all properties, exceeded Rs. 10 lakh per year. If the total rental income from all properties was less than Rs. 10 lakh, service tax was not charged.
Under the previous tax structure, only commercial properties were subject to service tax, even if a residential property was used for commercial purposes. Commercial properties were subject to a 15% service tax on rent, but income from rentals from residential homes was exempt.
Does renting out a property attract GST?
According to the GST Act, leasing an immovable property is considered a service. GST applies to specific types of rent, including:
- Leasing property for a lease, rent, agreement, or licensed occupation.
- Leasing any property (commercial, industrial, or residential) for business reasons, partially or entirely.
This type of leasing is considered a service and, as a result, taxed. A residential property leased for residential purposes is free from GST. However, any other leasing of immovable property for business purposes is liable to 18% GST because it is regarded as a service.
GST on Renting of Residential Property
When you rent out a residential property to an individual for personal use, GST does not apply. In simple terms, if someone rents a house to live in, the rental income is not subject to GST. However, if the property is leased to a business or for commercial purposes, GST will apply.
GST on Renting of Commercial Property
When you rent out a commercial property, you must pay 18% GST on the rent because it is considered a taxable service.
If a recognized religious or charitable trust owns and operates a public religious place, it is free from GST.
However, to qualify for this exemption, it has to meet the following conditions:
- The rooms should rent for less than Rs.1000 per day.
- Shops should have a monthly rent of less than Rs 10,000.
- The daily rent for any open area or community hall should be less than Rs.10,000.
Who is required to register when the property is rented out to businesses?
According to the Goods and Services Tax (GST) Act, if you rent out a property for commercial purposes and your annual rental income exceeds Rs. 20 lakhs, you must register for GST, irrespective of whether you are an individual or a business. Additionally, you must charge and pay 18% GST on rental income.
For example, if Miss.Priya rents her commercial property for Rs. 25 lakhs per year, she must register for GST because the rental income exceeds Rs. 20 lakhs. She should charge 18% GST on the rent and pay it to the government.
If the landlord is already registered for GST for other businesses, there is no need to register for rental revenue separately. Instead, rental income should be included in total turnover for GST purposes.
How to calculate GST on rented-out properties?
GST is calculated on rental premises by attaching an 18% rate to the tenant’s rent. Landlords must pay GST on the rental income they earn. The formula for calculating the GST on rental properties is:
GST = Rent x 18%
For example, if a business property’s monthly rent is Rs. 50,000, the GST would be calculated as:
GST = 50,000 x 18%
GST = Rs. 9,000
As a result, the landlord must pay Rs. 9,000 in GST on the monthly rent of Rs. 50,000.
What are the ITC provisions when GST is charged on rent?
When GST is added to rent, tenants who are registered for GST can receive a tax credit for the GST they paid. For example, if the rent is Rs. 1 lakh and the GST rate is 18%, the total GST amount is Rs. 18,000. If the tenant is GST registered, they can use the entire Rs. 18,000 credit to make up their GST due on what they sell.
It’s important to understand that this credit can only be claimed if the rented home is used for business rather than personal reasons. In addition, the tenant can only claim the credit if the landlord has paid the government the GST on rent. To be sure, tenants should validate that the landlord filed their GST reports and paid the GST to the government before claiming credit.
Proper documentation is essential for claiming this credit. Tenants should preserve a copy of their landlord’s invoice, which includes information such as the GST registration number, rent amount, and GST charged.
We have come to the end of this topic about GST on rent. Please share your thoughts and opinions with us in the comments box below.
FAQ
1. What is the GST rate on rental income?
Ans: GST is applied at an 18% rate to rent.
2. Does the tenant or the landlord pay the GST on the rent?
Ans: GST is collected from the tenant by the landlord. On the other hand, if the annual rent exceeds Rs 2.40 lakh, the tenant deducts 10% TDS from the rent.
3. Is it necessary for landlords to pay rent taxes before GST?
Ans: Before the introduction of GST, landlords were required to pay service tax on rent.
4. What is the GST rate for commercial property income?
Ans: For annual incomes of Rs 20 lakh or more, the GST rate on rent is 18% of the monthly rental income.
5.Is rent considered a taxable supply of goods or services under GST?
Ans: Under GST, rent is considered a taxable provision of services.
