GST Update on Renting Residential and Commercial property
Home > GST Update on Renting Residential and Commercial property
October 8, 2024
Is Rental Income from Property Taxed under GST?
According to the provisions of the Act, a transaction is subject to GST only if it involves a supply. The Renting of Property, whether Residential or Commercial, falls under the definition of supply of services as per Schedule II of the Central Goods and Services Tax Act,2017. Consequently, Rental income from property will be taxable under GST, and the tax implications vary for renting residential and commercial properties, as detailed below:
GST Implications for Renting Residential Property:
The following are the GST provisions applicable to rental income from residential properties:
- The rental income from residential properties used as residential dwelling was unconditionally exempt from GST until July 17, 2022.
- From July 18, 2022, rental income from residential properties used as residential dwellings is exempt only when rented to an unregistered tenant; if rented to a registered tenant, it is taxable.
- The registered tenant need to pay tax under the Reverse Charge Mechanism (RCM) as per Sr. No. 5AA.
| Nature of Property | Landlord | Tenant | Taxability under GST |
|---|---|---|---|
|
Residential Property |
Any person (Registered or Unregistered) |
Unregistered person |
Exempt |
|
Residential Property |
Any person
(Registered or Unregistered) |
Registered person (Sole proprietor – For personal residential purpose)* |
Exempt |
|
Residential Property |
Any person (Registered or Unregistered) |
Registered person (Sole proprietor – For Business purpose)** |
Taxable (under RCM) |
|
Residential Property |
Any person
(Registered or Unregistered) |
Other Registered
persons/Business entities |
Taxable (under RCM) |
*Residential Property Used for Residence Without Any Commercial Intention:
If a registered person rents a residential property to registered sole proprietor solely for personaldwelling, such rental Income is exempt from GST.
** Residential Property Used for Residence With Commercial Intention:
If a registered person rents a residential property for the purpose of providingaccommodation for employees, the provision differs. Although the Residential property isused for residential purposes, the underlying intention is commercial. Therefore, the rentalincome is taxable at 18%.
Note: The above provisions are applicable regardless of whether the landlord is registeredor unregistered.
Can ITC be claimed for tax paid on renting Commercial property?
- Input tax credit would be available on renting of Commercial Property where it has been used forin course or furtherance of business of registered person.
In case where the Registered person provides residential property for residential purposes to its employees, few people may take stand that ITC can be claimed as the taxpayer and their employees are distinct persons and it cannot be set for personal consumption hence ITC is not restricted under Section17(5).However, it is litigative as Department met a different stand.
GST Implications for Renting Commercial Property:
If any commercial property is rented out by a registered person, the rent is taxable @18% under forward charge. This applies to all types of commercial properties, including office spaces, shops, warehouses, and industrial buildings.
Amendment:
- During 54th GST council meeting it was proposed renting of any commercial property by an unregistered person to registered to tax under RCM
- Notification No. 09/2024-Central Tax (Rate) amends the provision regarding the renting of commercial property by an unregistered person to a registered person, specifying that GST shall be applied under the Reverse Charge Mechanism (RCM).
- This Amendment will take effect from the 10thOctober 2024.
| Nature of Property | Landlord | Tenant | Taxability under GST |
|---|---|---|---|
|
Commercial Property |
Registered person |
Registered person |
Taxable
(under FCM) |
|
Commercial Property |
Registered person |
Unregistered person |
Taxable
(under FCM) |
|
Commercial Property |
Unregistered person |
Unregistered person |
Not Taxable |
|
Commercial Property |
Unregistered person |
Registered person |
Taxable (under RCM) W.e.f. 10th October 2024 |
Can ITC be claimed for tax paid on renting Commercial property?
Input tax credit would be available on renting of Commercial Property where it has been used forin course or furtherance of business of registered person.
SBC Remarks
- There is an increase in the scope of RCM from recent proposal . The main aim is to tax all registered persons on all kind of property rentals, whether Residential or Commercial.
- The cashflows of the Registered persons who takes rent of Commercial Property will get impacted as the RCM need to be paid in Cash.
- The nature of property is not a relevant factor to decide the ITC availability but on how the property is used by the recipient of service is relevant factor to decide the Credit eligibility.
