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Impact of GST on Rent of Residential Property

Seep Gupta
Seep Gupta at January 10, 2023

What Defines a Residential Property

Now the central question arises Is GST applicable on residential property? But before answering it, one should understand what residential property means,

‘Residential house property means all types of properties used for residential properties only. These properties don’t include commercial properties which are rented for commercial or business purposes. Residential properties include houses or apartments.

Is GST Applicable on Residential Property?

Earlier GST was only applied on commercial properties but after the notification which came into effect on the 18th of July, GST will be applicable on residential properties also.

What is GST on Residential Property?

GST on the rent of residential property in India is generally treated as a supply of services. GST however will be applicable to certain types of rent. These are given below: -

  • If a landlord is registered under GST Act or if a property is given out on a lease or licensed to occupy,
  • When any residential property is leased or rented for carrying out any commercial activities,

These are some of the exceptions where the rent on residential property will attract 18 percent of Goods and Services Tax. So, if a taxpayer is earning and making profits from the business that is being carried out on the rented property then that person is liable to pay GST on such income.

The threshold limit to be taxable under the GST regime is Rs. 20 lakhs. Anything above that will be taxable under the GST regime.

 

How to Calculate the GST on Rented Residential Properties?

When a property is rented out to carry out commercial activities then the GST is calculated and charged on the total rent amount to be collected periodically.

When the invoice of the rent is raised every period, the GST (either 9 per cent CGST and SGST or 18 per cent if IGST) will be computed on the rent payable.

However, one thing to keep in mind is that ITC can be claimed on the GST paid by the person renting to pay his other tax dues. If all the conditions concerning the ITC are fulfilled, then the ITC on GST paid on rent can be claimed.

Impact of this Decision

This new decision of levying GST on the rent of residential property was decided and implemented in the 47th meeting of the GST council and will surely impact the companies and professionals who have taken residential properties on rent or lease.

The residential properties that are laid out for carrying commercial businesses will now attract 18 percent of GST. This will now lead to an increase in the employees’ costs for the companies that are offering free accommodation to their employees.

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