Tax Talks: Is GST applicable for renting a residential house?

If any common salaried person has taken a residential house or flat on rent or lease, they do not have to pay GST. However, a GST-registered person who carries out business or profession must incur 18% GST on such rent paid to the owner. Such persons can claim the input tax credit on the GST paid towards rent or lease on residential property.

Until 17th July 2022, GST was not charged on renting or leasing residential properties. However, from 18th July 2022 onwards, GST shall be charged if such residence is rented or leased by a GST-registered person. The update was recommended at the 47th GST Council meeting and has been notified vide the Central Tax (Rate) notification no. 4/2022 and 5/2022 on 13th July 2022.

As per the update, the tenant should pay GST on a reverse charge basis. It means tenants themselves must calculate GST at 18% on the rent or lease amount and deposit it with the government on the GST portal. They can claim this value as a deduction while they pay tax on sales in GST returns.

‘Persons’ include individuals as well as corporate entities. GST registration is needed when any person carries on business or profession and makes an annual turnover more than the threshold limit defined under the GST law. 

The limit varies according to the nature of supply and state or UT where the principal place of supply is located. If the person supplies services alone, Rs.20 lakh per financial year is the limit. The limit is Rs.40 lakh for a supplier of only goods. However, if registration is obtained from northeastern or special category states, the limit is lowered to Rs.10 lakh.

Suppose you are a gig worker or provide consultancy service or e-commerce seller working from a home you’ve rented out. Then if you are purely using this place for residential purposes without claiming rental expense as a business expense deduction in your income tax return, you can still refrain from paying GST on a reverse charge basis. However, if you show this rental expense as a deduction for income tax purposes, then be sure to compute and pay GST regularly in the monthly/quarterly GST returns you file. 

Note that where you are registered as a composition taxable person. Here, you cannot claim the input tax credit on rental expenses but might still have to pay GST on rent on a reverse charge basis.

For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@clear.in

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