GST on Renting of Immovable Property – Residential and Commercial

GST On Renting of Immovable Property

GST On Renting of Immovable Property: Under the GST regime, renting of immovable property is classified as a taxable supply of services. However, the good news is that residential properties and certain other types of properties are exempt from GST, while the GST rate on commercial properties and other types of properties is 18%. Let’s understand through this article which type of property rent is taxable in GST and which is exempt.

According to a recently made amendment to India’s Goods and Services Tax (GST) system, the provision of residential property rental services to GST-registered individuals will be liable to GST under the Reverse Charge Mechanism. That means a tenant who is GST-registered must pay GST at the rate of 18% when renting a residential property and using for business purpose.

Read Also: 10 Common mistakes to Avoid When Filing GST Returns

Before the amendment on July 18th 2022, renting residential property was taxable?

Prior to this amendment, renting a residential property was exempt, but renting the same property for business purposes was taxable. The GST on rent of residential property applied to both residential and commercial properties rented.

After the amendment on July 18th 2022, renting residential property was taxable?

Accordingly, from 18th July 2022, GST exemption will be available in case the following conditions are satisfied :

Condition 1 – The registered person is engaged in providing service relating to renting of residential dwelling; and

Condition 2 – The rented residential dwelling is used by the tenant for the purpose of residence; and

Condition 3 – The tenant is not registered under GST.

Only in above cases the GST will be exempt and will be taxable under all other cases.

GST on Renting of Immovable Property – Residential and Commercial

The taxability of GST on Renting of Immovable Property for business purposes- Residential and Commercial can be broadly summarised in the following manner:

GST on renting of home

What is the GST on Renting of Immovable Property being residential property after the amendment on July 18th 2022?

Renting of residential property is considered as a supply of service under CGST Act. When the residential property is rented for the purpose of residence and the tenant is not registered under GST, it is not taxable. In other cases, i.e., when a residential property is either rented for commercial purpose or the tenant is registered under GST, it is taxable @ 18% under reverse charge basis.

Read Also: GST registration compulsory for interstate supply?

Whether the small lodges, Inns, hostels etc. need to take registration under GST if their aggregate turnover exceeds Rs. 20 lakhs?

Many small inns, lodges, hostels, and other lodging establishments that offer rooms for less than Rs. 1,000 per night were taking advantage of this exemption while remaining unregistered for GST. Now, the majority of them would be subject to taxes. As a result, they must register under GST if their combined revenue for the financial year exceeds Rs. 20 lakhs.

Read Also: What E-commerce sellers need to know about GST registration

Director of Company when enters into a rental agreement with the Company for the premises to be used as a guest house/ employee quarter by the company. What is the GST implication on the director & the company? 

In this case, the director is not using the premises for his own or self use and instead the premises is given on rent to the company for use as a guest house/ employee quarter etc. Further, if company is registered under GST, then the transaction between the director and the company would be liable to tax under reverse charge in the hands of the company.

If company pays GST under RCM on residential property used by its employees/ directors, then whether ITC on the same would be eligible?

It is to be noted that as per section 16 of the CGST act, input tax credit is eligible on all goods/ services that are used in the course or furtherance of business.

Now, section 17(5)(g) states that input tax credit is blocked in cases where the goods/ services are used for personal consumption. In the given case, the service cannot be said to be used for the personal consumption because it is used by the company in the course of its business. In fact, the tax liability itself is paid under RCM only because the property was used in the course of business. If an argument is taken that the property is used for non-business and the personal purpose, then the very question of taxability does not arise.

Hence, in this case the service would be said to be used in the course of business and the input tax credit on the same should be eligible.

Read Also: GST Suspension reasons: How to activate the GST Registration suspended

Residential property is given on lease where the tenant uses it for mixed purpose i.e., both for commercial and also residential purpose. What would be GST implication?

It’s crucial to understand the main intention and the initial usage if the tenant uses the property for both residential and commercial purposes.

However, if a separate price is fixed for the area to be used for commercial and residential purposes, then the tax needs to be discharged proportionately under reverse charge to the extent of usage for commercial purpose. It is important that the terms of the agreement clearly spell out the intent and the break-up of costs to avoid any possible dispute with the tax authorities as to taxability.

University being an educational institution provides hostel services to its students, what is the GST implication on the same?

Services provided by university being an educational institution to its students are exempted from GST as they are imparted based on the curriculum and it leads to qualification in the form of a degree, diploma etc. Many educational institutions also provide the hostel facility to its students and a separate fee is charged for the said Hostel facilities provided.

It is pertinent to note that as per entry 66 of the Notification No. 12/2017-Central Tax (Rate) services provided by the educational institutions to its students are exempted from the tax net and hence even the hostel facility would be exempted.

Read Also: GST Practitioner – Step by Step guide, eligibility, duties

Is GST applicable to PG business?

Rent paid for hostel accommodations and by paying guests will attract 12 per cent goods and services tax (GST), the Authority for Advance Rulings (AAR) in Karnataka ruled recently.

The AAR further noted that if an accommodation provided a room and if people shared the same room with no individual kitchen facility, this won’t fall within the meaning of residential dwelling. Further, washing machine facility and TV etc will not be bundled services and hence will be taxed separately.

Is there any GST impact on the renting or rooms in the religious places by dharmshala’s?

If a charity or religious trust registered under sections 12AA or 12AB, a trust or institution registered under section 10(23C)(v), or a body or authority covered by clause section 10(23BBA) of the Income-tax Act, 1961, gives the areas in the religious place intended for the general public on rent, the same would not be subject to tax only if-

    • The rent of these rooms is less than Rs. 1,000 per day
    • The rent of shops and other spaces for business is less than Rs 10,000 per month
    • The rent of community halls or any open area is less than Rs 10,000 per day
Read Also: GST turnover limit for goods and services in various states
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