In India, GST has been established from 1st July 2017 with effect. It includes various indirect taxes such as VAT, Service Tax, Excise Duty, and so on with the GST rates of 12%, 18%, 28%, and 5%, but the actual rate depends on the kind of goods or services. When it comes to GST on rental properties, the rate of GST on rent is 18%. But, it should be kept in mind that the GST is levied only on commercial property renting but not on renting on residential property.
Impact of GST on Rental Income
With the adoption of GST, accumulating taxes from different sectors has now become very structured and convenient. Have a look at the influences of GST on rental income, which are as follows:
Rules of Pre-GST
The owner of the property should register service tax before the adoption and introduction of GST if his overall taxable service is more than Rs. 10 lakhs per year, including all the rental income from all of his properties. On the other side, if his taxable earnings from all properties do not exceed Rs. 10 lakhs, then the landlord does not need to pay service tax. Another important rule is that only commercial rental properties would be charged service tax @ 15%. This rule is also implemented on a residential space that has been rented out for commercial use. When rental earnings are generated from residential properties, it does not levy service tax but 15% of service tax is applicable on rental income from commercial properties.
Rules of Post GST
A crucial change has been found in the process of tax collection after the introduction of GST. It has uniformed and streamlined a plethora of sectors which thereby affected rental earnings at the same time. As GST on residential property has been exempted out, you do not have to pay any GST. In addition, after the introduction of GST, the GST turnover limit applicability has been listed in the range from Rs. 10 lakhs to Rs. 20 lakhs for any kind of renting or lease and businesses.
GST on Rent Policies
Let us discuss about the GST on Rent Policies which are given below:
Before the introduction of GST, the individual whose taxable rental income is more than Rs. 10 lakhs a year need to pay service tax on the taxable amount. In case, if his rental income is below Rs. 10 lakhs per year, then he is exempted from paying any service tax to the government. If we talk about another important law, it should be noted that the service tax is only charged on leasing commercial properties. However, there is not any tax obligation for the owner if he is gaining rental earnings from any residential property.
After the introduction of GST laws, the mechanism of tax collection has been changed completely for the convenience of the owners of the property. The GST turnover limit for rental income from commercial properties has increased to Rs. 20 lakhs. However, there is no GST charged for the rental income earned from leasing a residential property for residential accommodation. It simply means that now with the GST regime, the tax would only be charged on the rental income from commercial houses or properties if it exceeds Rs. 20 lakhs. On the other hand, a GST of 18% is levied on any other kind of renting or leasing out of the immovable property for business undertakings. It even involves renting out residential and commercial property for commercial use no matter if it is partially or fully. Moreover, it should bear in mind that the applicability of GST is no determined by the nature of the property but by its purpose.
For example, if you stay in Delhi, but have a property in Chennai which is given for lease to use as a guest house, such transaction would be charged under GST if the rental earnings are more than Rs. 20 lakhs per year. Also, make a note that the SGST is levied in the place of supply which is Chennai rather than the living place which is Delhi. Besides, a deduction of TDS has been made on rental income if it exceeds Rs. 2.4 lakhs per annum. On either side, you can submit Form 15H or Form 15G to make a request not to deduct TDS in case if there is no tax on your total income.
GST on Commercial Property
The new rules have been introduced associating with the GST applicability on commercial rent. GST on commercial property is applicable only when the rental income from commercial properties is more than Rs. 20 lakhs. As mentioned above, renting out a residential property for the purpose of residential is exempted from GST. However, a GST rate of 18% is implied on any kind of renting out of the immovable property for business as it is considered as a supply of service. Moreover, this comprises renting out residential and commercial property for commercial reasons no matter if it is partially or fully.
3 Major Points to Remember about GST on Commercial Rental Income
- If a rental income from commercial property is more than Rs. 20 lakhs per annum, it would be leviable to GST.
- The SGST would always be levied on the place of supply where the actual property is located even though you live in another place.
- If the rental income from a commercial property or residential property depending on the nature of the property is less than Rs. 20 lakh per year, it would not be included in the payment of GST.
FAQs related to GST on Rent
1. Would I be charged GST on rental income?
GST is not charged when you rent out a residential property for residential use. However, any kind of leasing out of the immovable property for business would charge 18% GST as it would be considered as a supply of service.
2. How do you calculate GST on rental income?
When it comes to GST on rent, the owner of the property has to charge GST on the rent amount. If the rent for the property is more than Rs. 2.40 lakh per year from the assessment year 2020-21 onwards, the payer of the rent should deduct income tax at source at 10%.
3. Can I claim GST on my rental property?
Yes, you can claim GST on your rental property if it is used for commercial purposes but not for residential purposes.
4. Is rental income included in GST turnover?
Even though input is taxed on the residential rent, it is not calculated in the GST turnover. However, if it is commercial rent, it would be included in the GST turnover calculations.
5. Is residential rental income GST free?
Yes, rental income from the residential property given for residential accommodation is not leviable for GST but the rent is input-taxed. Hence, the residential rental income is GST-free.
6. Can we claim GST on construction?
Input services and major construction materials charges attract 18% GST. As compared to the Pre-GST regime, effective GST incidence has not increased for affordable segments with a tax on 45% of the labour and material at the rate of 18% GST.
7. What is the HSN code for a rental property?
The rent HSN code for renting a commercial space is 9972, and it is taxable at the rate of 18%.