No GST on Rent for Personal Purposes

The Goods and Services Tax (GST) Council has proposed a few changes to the law in its 47th meeting held in June 2022. Accordingly, CBIC issued notifications to make those changes effective from July 2018.

One of the amendments is that tenants have to pay 18% GST on home rent. Until now, GST was applicable on the residential property when used for commercial reasons such as offices and shops. Now, the new rule states that the GST must be paid on the property rent for any use. However, every tenant doesn’t have to pay GST, and only the GST-registered tenants are liable for GST.

Also, recently the government clarified that GST is not applicable when the property is rented to a private person for personal use. Also, GST will not attract even if the proprietor or partner of the firm rents residence for personal use.

A person has to get the GST registration when the annual turnover is more than Rs 40 lakhs (traders) and Rs 20 lakh (service providers). So, this clarifies that the salaried persons who pay rent for residential purposes don’t have to pay GST as they are mostly not registered under GST.

The persons registered under GST must pay tax under the Reverse Charge Mechanism (RCM). Hence, the tenant will be liable to pay the tax and not the owner. Under RCM, the tax payment liability is on the recipient of a good or service instead of the supplier. For instance, if a company rents flats to accommodate employees, it is deemed a tenant and liable to pay the GST.

Let’s see a few more scenarios on the applicability of the new rule:

Scenario Is the property owner registered under GST? Is the tenant registered under GST? Applicability of GST Who has to pay GST?
1 Yes Yes Yes Tenant 

(under RCM)

2 No Yes Yes Tenant 

(under RCM)

3 Yes No No NA
4 No No No NA

 

However, the government has to clarify the issue of the ITC availability on such GST paid.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in

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