The implementation of GST has left a significant impact on both the residential and commercial real estate sectors. Let alone the capital market, the rental market, too, is not spared of the tax levy. For instance, the rental income generated from commercial units attracts GST. Here are certain other provisions and exemptions of the new tax regime in relation to the rental properties.
What is GST on Rent?
Goods and Services Act, or GST, was first introduced in 2017. The introduction of GST brought a lot of changes in the taxation system of rental income. Under GST, renting a property is considered a supply of service that is taxable, and both tenants and landlords have to fulfill their tax obligations. Rental income earned by the landlords attracts GST. The tax is calculated as a percentage of the rental income received. The tenants who pay the rent also have to pay GST on the rent amount. This tax is included in the total rent and deposited to the tax department by the landlords on behalf of the tenant.
GST on rent payment
As per the provisions of the GST Act, renting out of a commercial property or a property used for commercial purposes would be considered as a supply of services. With this, GST will be applicable on a property when it is let out on lease or rent.
GST would be applicable on these types of properties –
- Commercial properties
- Industrial properties
- Residential properties running business
After the new unified tax system was implemented, the Central government has decided to revise the threshold limit of GST applicability on the rental income. With the revision, 18 percent GST will be levied on properties with annual rental income above Rs 20 lakh, as opposed to Rs 10 lakh during the pre-GST era. For instance, if a shop in Malviya Nagar is rented out for Rs 1 lakh a month, or Rs 12 lakh per annum, then no GST would be applicable on the property owner.
Is Rental Income from Property Taxed?
As per the GST Act, renting out an immovable property is treated as a supply of service. However, GST is applicable only on –
- Properties given out on rent, easement, lease, or licensed to occupy.
- When any commercial, industrial, or residential property is let out either wholly or partly for business purposes.
Note: Rental income on letting out of a residential property is not considered a supply of services and, therefore, is exempt from GST.
GST on Renting of Residential Property
GST is not applicable if a residential property is rented out to a registered person in their personal capacity and for use as their own residence. In other words, if a residential property is rented out, that too for residential purposes, then the rental income from such property does not attract GST.
However, it is important to note that this exemption only applies when the property is rented out in a personal capacity and used as a residence. If the same property is rented for commercial purposes or to a business entity, it will attract GST.
GST on Commercial Property Renting
If any commercial property is rented out, it attracts GST @18% on the taxable value, and the rent is considered a taxable supply of service.
If a registered religious trust or charitable trust manages and owns a religious place that is meant for the public, it is exempt from GST. However, to avail of this exemption, it has to fulfill the following conditions –
- The rent of the rooms should be less than Rs.1000 per day.
- The rent of shops should be less than Rs.10,000 per month.
- The rent of any open area or community hall should be less than Rs.10,000 per day.
Properties rented by charitable or religious trusts
No GST will be levied on the rental income if a property is leased out for charitable and religious purposes. However, GST exemption would only happen if,
– Rent of a room is less than Rs 1,000 a day
– Rent of a shop is less than Rs 10,000 a month
– Rent of a community hall or an open space is less than Rs 10,000 a day