The dynamics of renting a house under GST have changed. The decision to put residential rent under the tax net was taken recently in the 47th GST council meeting. The Financial Ministries revenue department has introduced 18% GST on goods and service tax nationwide.
The service tax was introduced in 2007 only for the rental of commercial real estate. Homeownership was excluded when GST was introduced in 2017. Earlier GST was not applicable if the residential property was rented to any person(whether registered or unregistered under GST).
According to the notice, housing rented to registrants will be taxed at 18% GST. In addition, the lessee has to pay taxes, and the lessor is freed from legal obligations. If the supplier (lessor/landlord) is registered for GST, it will be counted as an outbound supply for reverse charge. The landlord has no additional liability for GST as the GST liability is on the recipient (tenant/lessee). Claiming input tax credit is out of the question according to Article 17(2).
Because outgoing services are taxable according to RCM, and If the tenant is registered for GST and takes over the rental property from any person (registered or unregistered), GST under the RCM will apply. The obligation to pay his GST of 18% is on the recipient of the service (lessee/tenant). The recipient can also claim her ITC (Input Tax Credit) of her GST paid under reverse charge. This is because rent payments are business expenses and are not included on the ITC block list u/s 17(5).
As a result of this change, tenants renting homes for retirement or for the purpose of providing employees and managers will be taxable. Moreover, individuals or owners who are registered with GST and rent a home for personal use rather than business expenses are also taxable. This requires government intervention. Taxation on rents in countries like INDIA would be a sensitive issue since the majority of the people are homeless.
Scenario 1: When corporations, LLPs, companies, AOPs, BOIs, etc., take over housing for the purpose of renting housing for their employees, it is considered business expenses. GST is paid under RCM, and he can claim ITC for his GST paid under reverse charge. Also, If a GST-registered composition distributor acquires a residence for the purpose of living on rent, this is considered a business expense. GST will be paid according to RCM, but the ITC of his GST paid under reverse charge cannot be claimed by the composition dealer under section 10(4).
Scenario 2: If an individual registered as a condominium under GST moves into a residence for the purpose of renting it out for a family member, this is considered a personal expense item and not a condominium business expense. GST will be paid under RCM, but ITC for GST paid under reverse charge cannot be claimed as it is blocked under Section 17(1). Individuals are advised not to rent property on behalf of a business (owning company) to avoid GST liability.
Scenario 3: If the residence is rented by the registrant for commercial purposes, it is treated as a commercial unit. If the landlord is not registered, GST will not be collected and paid by the landlord or tenant. If the lessor is registered, GST is calculated on a forward rate basis from which the recipient can receive his ITC.
“The rental business has become one of the main sources of income, and the new GST regulation system is expected to affect the real estate rental business. Previously, GST was taxed only on rentable commercial real estate”. He also added that “ Introducing 18% GST for renting an apartment will have a big impact on the sentiment of the buyers. This decision will also have a serious impact on the demand for rental properties”.
Vineet Chellani, Founder of Asset Deals
