GST on rentals? Registered tenants must pay an 18% tax on house rent

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• Aug 12, 2022 | Dhupali Das

Previously, the GST only applied to commercial real estate, such as offices or retail spaces that were rented or leased...

Digital Desk: A tenant who is registered with the GST must pay Goods and Services Tax at 18% for renting a residential property, according to the new GST rules effective from July 18. Only tenants who are registered under the GST are subject to the 18% tax on rent.

Previously, the GST only applied to commercial real estates, such as offices or retail spaces that were rented or leased. There was no GST on the rent or lease of residential premises by corporations or individuals.

A GST-registered tenant will now be required to pay the tax through the reverse charge mechanism (RCM), as per the new regulations. The tenant can deduct the GST paid through the Input Tax Credit.

The tax will only be charged if the tenant is GST-registered and liable to file GST returns. The residential property's owner is exempt from paying the GST.

"Any common salaried person who has rented or leased a residential home is exempt from paying GST."

But, any rent paid to the owner by a GST-registered person who engages in business or profession is subject to an 18% GST charge, said ClearTax's founder and CEO, Archit Gupta.

A GST-registered individual who provides services from a rented residential property will be required to pay an 18% tax.

Both people and corporate entities are considered registered persons under the GST law. When a person engaged in a business or profession generates more than the threshold amount in annual revenue, they are required to register for GST.

The GST law's cap varies depending on the type and location of the supply. The threshold limit for a registered person supplying services alone is ₹ 20 lakh in a financial year.

The limit for a supplier of only goods is ₹ 40 lakh. But, if the registered entity is located in any of the northeastern states or special category states, the threshold limit is 10 lakh each fiscal year.

Who Will Be Affected?

The new regulations, which went into effect following the GST Council's 47th meeting, would affect businesses and professionals who have rented or leased residential properties.

The rent paid by businesses for housing properties taken on rent to be utilized as guest houses or residences for staff will now be subject to 18% GST. This will raise employee costs for companies that provide free housing to their staff.