Rent is a major expense of any person whether he/ she is using the property for business or personal purpose.
Before GST, service tax was applicable on rent and because of which the manufacturing and trading industry people were not able to take credit of service tax paid on rent as they used to Pay VAT or excise duty and service tax could not be set off against them.
After GST, i.e. from July 2017, everything was brought under one umbrella and now GST on rent could be used and set off against their output liability.
Before going onto the GST rates and other details let’s first understand when a person is required to register under GST for charging GST on rental services provided.
GST registration needs to be done by the person providing rental services i.e. the person who is giving property on rent.
The threshold limit for applicability of GST has been prescribed at Rs. 20 lakh (Please note that the threshold limit of Rs.20 lakh excludes special category states, where the limit remains at Rs.10 lakh.)
Some special states where the above limit Rs. 10 lakhs are as below:
- Arunachal Pradesh
- Himachal Pradesh
Now, let’s discuss about the GST rates on service of renting.
The basic definition of outward supply includes rental income in the ambit of supply. Renting of immovable property is specifically considered as a supply of services in the GST regime. As per the GST Act, the following types of rents are covered under GST:
- any lease, tenancy, easement, license to occupy Land
- any lease or letting out of the building including commercial or residential property for business or commerce (wholly or partly).
This type of renting is considered as a supply of services, and hence, GST would be attracted.
There can be two major bifurcation under GST for rental services i.e. Rental of commercial property or rental of residential property.
Let’s first understand the GST implication on rental related to renting of residential property for residential purpose.
This would include people who rent their house to other people for the purpose of using the same as a residential house. As per SAC code Heading 9963 or Heading 9972 Services by way of renting of residential dwelling for use as residence is covered under Nil rated supply (vide notification 12/2017).
Hence, if a person provides his house for residential purpose same would be charged to GST at 0%. Thus, such supply is not outside the purview of GST Act but is covered under GST Act at Nil rate.
Let’s understand the same with an example:
- If Person A gives his house on rent to Person B for residential purpose and the total rent is Rs. 24 lakh in a year then Mr. A is not required to charge any GST or register under GST for same.
- If Person A gives his house on rent to Person B for commercial purpose and the total rent is Rs. 24 lakh in a year then Mr. A is required to charge GST as well as register under GST for same.
- If Person A gives his house on rent to Person B for residential purpose where the total rent is Rs. 24 lakh and Person A receives rent from renting of his commercial shop of Rs. 2 lakh in a year then Mr. A is required to charge GST on rent from commercial shop and register under GST as his total taxable supply i.e. (24 lakh + 2 lakh) exceeds the threshold limit and while filing GST return Person A has to also show such supply under Nil rated supply.
In case of renting of commercial property or land, GST shall be charged at the rate of 18% under the SAC code 997212, if the supplier is already registered under GST and if not registered then GST will be charged only if the total amount of rent exceeds Rs. 20 lakh in a year.
Further, GST shall be charged in case of rent of commercial property irrespective of the purpose for which the same is used.
Note: The above information does not include GST implication on rental services provided by central government, state government, trust or hotel.
What is the provision for a tax deduction under income tax for the rented property?
The owner of the property has to collect the GST from the person paying rent. This GST will be on the rent charged. The payer of rent has to deduct income tax at source at 10% if the rent for the property exceeds Rs. 2.40 lakh per year from the AY 20-21 onwards and if the property is used for business purpose under section 194-I of the Income tax act.
In case of residential house used for residential purpose TDS will be deducted under section 194-IB of the Act if the monthly rent exceeds Rs. 50,000.
No TDS will be deducted on the GST component included in rental amount.
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