GST (Goods and Services Tax) on rental income from Property

Impact of GST on Rent

The implementation of Goods and Services Tax (GST) has created an organized way to collect taxes from different sectors.

Rent has been the type of revenue for some throughout the long term. In this article, let us talk about the impact of the execution of GST on rent and let us additionally check whether GST differs for commercial properties and residential properties.

What was the scenario in the Pre-GST period?

Pre-GST, the landlord needed to acquire a service tax enlistment if his absolute taxable services (counting the rental income from all properties) surpasses Rs 10 lakh each year.

However, if the rental income (from all of the properties that have been rented-out) is not more than Rs 10 lakh each year, the landlord would not be attracted to service tax.

Under the past tax regime, commercial properties alone, that were let-out, would attract service tax. This applies regardless of whether a residential property is utilized for commercial purposes.

Service tax was collected at 15% of the rent, for commercial properties. To add, rental income from residential properties didn't attract service tax.

At the point when the GST Act was presented there was a minor change made in the applicability of tax on commercial rental income. Before GST, the breaking point was fixed at commercial rental income of Rs 10 lakhs per annum though post GST, the cutoff was raised to Rs 20 lakhs per annum.

Here is the thing that you need to think about the applicability of GST on commercial rental income. The execution of Goods and Services Tax (GST) has brought about an organized way to deal with collect taxes from different sectors.

Rent has been a significant type of revenue for some and the emphasis here is on the issue of rent from commercial property and the GST implications of the equivalent.

Moving from the old Service Tax regime to the new GST regime

Before July 2018, the landlord needed to get a service tax enrollment if his all out taxable rental income from all properties surpassed Rs 10 lakh each year. At the end of the day, the landlord would be exempt from service tax if his rental income was under Rs 10 lakhs.

In the past regime, just rental income from commercial properties was exposed to service tax. This likewise applied to residential property utilized for commercial purposes. Service tax was charged at the pace of 15% of the rent for commercial properties.

As per the GST Act, renting or leasing out of immovable property would be treated as a supply of services. GST would be applicable just in the accompanying conditions.

At the point when a property is given out on lease, rent, easement, or licensed to possess.

At the point when any property is leased out (or let out) including a commercial, industrial, or residential property for business (either somewhat or entirely).

Such renting is considered as a supply of services and hence would attract tax.

All in all, if a residential property was either utilized or let out for commercial purposes then it would be named a service gave and attract GST. Just property let out for residential purposes will be exempt from the GST ambit.

The new rules relating to the GST applicability on commercial rent

GST will be applicable when the rental income from commercial leasing is past Rs 20 lakhs. At the point when you rent out a residential property for residential reason, it is exempt from GST.

Some other type of leasing or renting out of immovable property for business would be charged GST at 18%, as it would be treated as a supply of service. This incorporates leasing out commercial and residential property for commercial purposes, either completely or in part.

After GST was actualized, as far as possible for GST has been expanded to Rs 20 lakh from Rs 10 lakh. This encourages numerous landlords to avoid the GST ambit.

Three main points to keep in mind about GST on commercial rent

The GST applicability isn't chosen by the nature of the property yet by the reason for which it is utilized.

In case that you live in Delhi and have a property in Chennai that is rented out to a listed company for using as a guest house, at that point such a transaction will be leviable to GST if the rental income surpasses Rs 20 lakhs per annum. Here the utilization of the house is as a guest house, which is a commercial use.

What will be the spot of supply in the above case? Under GST, the spot of supply will be the area of the immovable property. Despite the fact that you may dwell in Delhi, the spot of supply will consistently be the place where the property is arranged, which is Chennai and henceforth the state to get the SGST will be Tamil Nadu.

On the off chance that the rental stream is not as much as Rs 20 lakh a year, subsequently it is exempted from payment of GST. To emphasize, it isn't the nature of the property yet the nature of the end utilize that will decide if it is a commercial rent or residential rent.

Is the GST paid on rent claimable with the end goal of input tax credit (ITC)?

The individual paying GST on rent can assume praise for this tax paid against the GST that he is needed to pay. Basically, if every one of the provisions to guarantee Input tax credit are satisfied, ITC on GST paid on rent can be asserted.

Allow us likewise to take a gander at the provisions relating to TDS on rent on commercial property. The proprietor of the leased property needs to collect the GST from the individual paying rent. This GST will be on the rent charged according to the rental contract.

The payer of rent needs to deduct income tax at source (TDS) at 10% if the rent for the property surpasses Rs.1.80 lakh each year. Inability to do so will attract penal provisions of the law and it might incorporate monetary penalties including imprisonment.

(Also Read: GST refund procedure)