Renting of immovable property is one of the major sectors in Indian economy. GST is applicable to all businesses including those which deal with the renting of immovable property.

Immovable property means any land, building or part of a building. The renting of immovable property can be both residential as well as commercial and it is subject to many taxes. So, now in this article we will discuss GST impact on rent of immovable property.

Before discussing the tax implications let us see exemptions under GST-

• Vacant Land- The renting of vacant land is exempt from GST.
• Agricultural Land-The renting of agricultural land is also exempt from GST.
• Educational institutions- The renting of immovable property to educational institutions for educational purposes is exempt from GST.
• Residential properties- Renting off residential property for residential purposes is exempt from GST. This includes renting of apartments, flats, and houses for residential purposes.
• Lodging Services- Renting rooms for residential or lodging purposes is exempt from GST if the tariff is less than 1000 per day.

Rent under GST - According to GST act renting out an immovable property would be treated as supply of service. However, GST will be applicable only on particular types of rent. Such as when a property is given out on lease, rent or licensed to occupy. Or when a property is leased out including commercial, industrial or residential property for business.

Now we will discuss impact of GST on residential as well as commercial properties-

Residential Property

Residential property is a place where houses are built for the purpose of staying in or residing. These houses are for self-use and cannot be used for industrial or commercial purposes.

Who is liable to pay GST on rent of residential property?

There is a lot of confusion and chaos among landlord and tenants in case of applicability of GST on rent of residential property. Since the applicability of GST till 17th July 2022 the law was as under-

GST exemption will be available in case following conditions are satisfied-

1. The registered person is engaged in providing service relating to renting of residential dwelling and
2. The rented residential dwelling is used by the tenant for the purpose of resident.

But a drastic change has been occurred from 18th July 2022, GST exemption will be available in case of following conditions are satisfied-

1. The registered person is engaged in providing service relating to renting of residential dwelling and
2. The rented residential dwelling is used by the tenant for the purpose of residence and
3. The tenant is not registered under GST.

In other words, we can understand this provision like this-

If a tenant is registered, then GST will be applicable @ 18% under the reverse charge mechanism.

GST is applicable from the start if residential dwelling is not used for residential purposes.

Note - If Government or local authorities give immovable property on rent to a registered person, then GST is to be paid by the tenant under Reverse charge mechanism. If the tenant is an unregistered person, then the government will collect GST under the forward charge mechanism.

Commercial Property

Commercial property refers to an immovable property used for industry. Commercial property typically refers to a building that is intended to make profit and larger residential rental properties.

Who is liable to pay GST on rent of commercial property?

GST provisions related to commercial property are quite simple. GST @ 18% on rent on commercial property is payable by registered landlord. There is no reverse charge applicable in the case of GST on rent on commercial property.

Requirement of Registration-

A person who is earning more than threshold limit (Which is generally 20 lakhs) is required to get registration under GST. For calculation of threshold limit of 20 lakhs rupees rental income from all properties and all other taxable supplies are considered. Now understand this provision clearly-

Example 1 - Mr. X resides in Mumbai and has a property in Pune which has been rented out to ABC Ltd. to use as a guest house. He is getting a rental income of 40000 RS. Per month or 480000 Rs per annum. So, we can see that his rental income is less than 20 lakhs. So, Mr. X is not required to get registration under GST.

Example 2-Mr. Y has four properties which are given on rent in FY-23-24. Rental income of Mr. Y is as follows-

Here the rental income of Mr. Y is liable to take registration in GST because his turnover exceeds 20 lakhs.

Calculation of GST-

Let’s say rent of a rented commercial property is Rs. 50000 per month. Then landlord is liable to pay GST on rent received from tenant i.e. 50000*18% = 9000 Rs

Impact of GST on other areas-

Now let’s discuss some more concepts related to GST on commercial property-

If a registered religious trust or charitable trust manages or owns a religious place that is meant for public use, then GST is exempt if following conditions are satisfied-

1. The rent of the room should be less than 1000 Rs per day.
2. The rent of shops should be less than 10000 Rs per month.
3. The rent for any open area or community hall should be less than 10000 Rs per day.

ITC provisions related to rental Income -

• Tenant is eligible to claim ITC on rent paid by him to landlord. But only if the property is commercial property or used for commercial purposes.
• ITC is also allowed for repair and renovation to the extent of that amount which is not capitalized.

Place of supply -

Landlord can be registered in a different state and property can be situated in another state. So, there may be following situations which we should discuss-

1. Landlord and tenant both are registered in same state where property is situated - In this case both CGST and SGST will be charged.
2. Landlord is registered in different state and property is situated in other state - The place of supply will be the place where property is situated. It will be treated as interstate supply and IGST will be charged.
3. Landlord and property are situated in same state, but tenant is registered in different state - It does not matter where tenant is registered. So, it will also be treated as intrastate supply and CGST and SGST will be charged.

Example -

Mr. ABC from Delhi travels to Haryana for a meeting and stays there in a hotel. He books a room and pays a rent of 20000 Rs. The owner of the hotel is registered in Gurugram, and the hotel is also situated in the same city. In this case, both CGST and SGST will be charged.

Conclusion-

The implementation of GST on the renting of immovable property has brought in a lot of changes in the tax structure of the country. The implementation of GST has simplified the tax structure for the renting of immovable property and has reduced the tax burden on the tenants. However, it has also increased the compliance burden on the landlords and has led to an increase in their compliance costs.

Related Sections/Rules/Notifications