Rent is treated as a taxable supply of service under the GST regime. Under the tax framework, renting the property by the landlord and renting the property by the tenant are both viewed as an extension of service, in specific circumstances. This way, under the Goods and Services Tax law that was launched in July 2017, GST is applicable on rental income (to be paid by the landlord) as well as rent paid (to be paid by the tenant).
It must be underscored here that applicability of GST on rent arises, based on the ultimate use of the property and not the type of the property. As long as the property is being used for commercial or business purposes, GST on rent and GST on rental income will be applicable even if the property type is residential.
individuals and corporate entities. A person or company has to register under the GST, if they earn more than the set threshold limit per annum. For an individual service provider, the threshold is Rs 20 lakh per annum while it is Rs 40 lakh for businesses across the country, barring the northeastern states (where the limit is set at Rs 20 lakh).
GST on rent: Impact on rental housing
The decision may hinder the expansion of rental real estate in India by increasing the tax burden on businesses that rent out residential properties to be used as guest houses and accommodations for their employees, says Vivek Rathi, director-research, Knight Frank India.
“If someone pays a monthly rent of Rs 1 lakh, the property value would be in the range to Rs 5 crore-Rs 6 crore. The GST, which will be around Rs 18,000, will burn a hole in the pocket of the tenant and eventually, the property owner, as the tenant may want to negotiate the rent. That means there would be a lesser number of people coming forward to provide properties for rental, as their rental income might be adversely impacted. This may also impact luxury housing demand and projects, as investors may not want to invest,” Pankaj Kapoor, founder and MD of Liases Foras, was quoted by the media as saying.
Experts are of the view that the move will be highly detrimental to the government’s stated position of rental housing promotion in India. On one hand, it will increase cost and compliance for companies. On the other, it may also result in revenue loss for the government.
How so?
To avoid paying the GST, companies would prefer to rent the premises in the name of their employees — who will not be GST-registered — in place of having their names on the rent lease.
The move to impose 18% GST will also have an adverse impact on the co-living segment in the country. Most co-living operators rent out resident homes from individual owners and use those as student accommodations. Since, in a majority of cases, they are GST-registered, the application of 18% GST will eat into their already negligible profit margins.
Know that salaried individuals are neither liable to register under the GST nor have to pay the 18% tax on the rent they pay to their landlords.
GST on rent vs GST on rental income
Note that GST on rent and GST on rental income are different. GST on rental income is applicable when a landlord receives an annual rent of Rs 20 lakh, and effectively becomes liable to pay GST on rental income.
GST on rent, on the other hand, is the tax liability on the tenant if they are a GST-registered entity, and using a residential property for business purposes. In simpler terms, GST on rental income is paid by the landlord while the GST on rent is paid by the tenant.
This also means that in a scenario where a residential property is let out for business purposes to a GST-registered person, and where the GST-registered landlord is earning an annual rental rent of Rs 20 lakh, the landlord as well as the tenant will have to pay 18% GST, taking their mutual GST liability at 36%.
Applicability of GST on rent
Applicability of GST on rent is determined by two factors:
Property type
GST on rent is applicable to properties rented for commercial/business purposes. Even if a residential property is rented for commercial/business purposes, the rental income and rent paid both can be liable for tax under the GST regime. It is important to mention here that GST liability would remain intact as long as you have given your property on rent for business, irrespective of the nature of its usage.
If a landlord has rented his residential property for residential purposes to an individual, not registered under the GST, the GST on rental income would not be applicable.
Rental income threshold
Under the GST regime, the need to pay GST on rent arises, when you get an annual rental income of Rs 20 lakhs or more from your service providing business. Earlier, this threshold was kept at Rs 10 lakhs. In case you are a business, the limit is Rs 40 lakh per annum.
Rate of GST on rent and rental income
In case both the above factors are applicable, you will have to pay 18% of your rental income as GST on rent.
How to pay GST on rent?
In case GST on rental income is applicable, the landlord will have to register himself and pay tax.
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