Union Finance Minister Nirmala Sitharaman at the 47th GST Council meeting in June approved a heap of changes to the taxing scheme.

One of the most significant changes was when renting a residential property, GST-registered tenants must pay Goods and Services Tax at the rate of 18%.

Yes, you heard right. House rent will now be taxed.

 GST-registered persons or companies are liable to pay a percent tax that offers services from a rented residential property.

A tenant is required to pay 18 percent GST on the rented residential property with effect from 18 July, as per the sanctions of the 47th GST Council meeting. It is only applicable to tenants registered with the GST system.

the tenant is liable to pay the tax under the reverse charge mechanism (RCM). This means they can claim the value as a deduction under the input tax credit.

tax on tenants property tag with property showing in the background

Previous Rule

Before June 18, 2022, the residential property was not subjected to pay any kind of taxes, regardless the landlord or tenant was GST registered or not. Only commercial establishments like offices or retail shops given on lease attracted GST. There was no GST on rent or lease of residential properties by corporate houses or individuals.

Registered with the GST

A registered person could be an individual or a corporate entity. This registration is compulsory if the business or profession reaches an annual turnover of more than the threshold limit.

The threshold limit for a registered person supplying services is Rs 20 lakh and Rs 40 lakh for the supplier of goods.

Though, if the registered entity is placed in the northeastern or special category states, the limit is Rs 10 lakh per financial year.

GST on Commercial Property

The GST is applicable on commercial property when the landlord is GST-registered. It is mandatory for a landlord to register for the GST when his turnover is more than Rs.20 lakhs in the case of a supply of services and more than Rs.40 lakhs in the case of a supply of goods.

If the landlord is GST-registered and rents the commercial property, then the landlord will charge the tenant 18% GST regardless of whether the tenant is GST-registered or not.

18 percent tax applies to?

The new rules apply to GST-registered persons or companies who offer services from a rented residential property.

It will also impact corporates and taxpayers who have rented out houses or flats for their employees. For example, guest houses or residences for employees will be taxed. This will increase the cost for companies offering free accommodation to employees.

GST on Residential Property

As per the new rules, if the tenant of the residential property is GST-registered, he has to pay 18% GST irrespective of the fact that the landlord is GST-registered or not. The payment of the GST shall be made under the reverse charge mechanism (RCM), which means that the tenant shall directly pay the GST to the government.

Salaried Individuals?

The 18 percent GST will not apply to salaried individuals who have leased an apartment

GST is payable by Tenants on Residential Property

Tenants who are GST registered must pay GST when renting a residential property. The tenants registered under GST may include companies; small businesses doing business in residential property; online content creators who shoot videos, etc.; and business professionals like CAs, lawyers, architects, and business consultants.

There are Cases in which GST is not payable by tenants on residential property

  • Tenants who are not GST registered are not required to pay GST when renting a residential property
  • The salaried class person is not required to pay GST when renting a residential property

Other GST changes?

The 47th GST Council meeting decided to accept the final reports by a group of ministers on the correction of duty inversion and exemption.

Pre-packaged and pre-labeled retail packs, including curd, lassi, and buttermilk, were brought under GST from 18 July. Also, the Council decided to impose 18 percent GST on fees charged by banks to cheques

Hotel rooms under Rs 1000 were exempted from tax earlier but have now been brought under the 12 percent GST slab.

Hospital room rent, excluding intensive care unit (ICU), exceeding Rs 5,000 per day per patient will also be taxed at five percent without the input tax credit,

The GST on petroleum and e-waste has also increased to 12 and 18 percent respectively from the earlier five percent. Tax exemption on services extended by the Reserve Bank of India, Insurance Regulatory and Development Authority (IRDA), Sebi, Food Safety and Standards Authority of India (FSSAI), and GST has also been withdrawn.

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