GST was introduced in India to unify the entire tax structure and enhance more transparency, accuracy, and accountability.

Like every other sector, real estate and its different facets like rent, sale, lease, etc. also come under the GST. Moreover, several provisions were made for calculating GST on the rental income. You can go through gst wiki to learn about all the tools and resources you need to simplify the rental process under the current tax system.

This article explores the impact of GST on rent, and whether your landlord is likely to increase prices under the tax reform.

Tax On Rent Before The Implementation Of GST

The simple exemption limit was Rs 10 lakh for tax registration.

If a person, let’s suppose your landlord, generates rental revenue more than Rs 10 lakh annually, he has to register for a service tax. If the same amount is under Rs 10 lakh, then he is exempted from paying any tax to the government.

Interestingly, there was no tax to be paid for rent received from the residential property, used for residential purposes only. Rent generated from residential property for commercial use fall under taxable income.

Similarly, rent exceeding the amount of Rs 10 lakh from the commercial property was chargeable at a rate of 15 per cent under the taxable income law.

Effect Of GST On Rent

Taxable Services

As per the GST Act, 2017, any immovable property on rent, such as tenancy, lease, license on land occupancy, easement, lease, or rent of commercial or industrial complex for a business, falls under the GST service tax. For this reason, GST is implemented on all of them.

Place Of Supply

Section 12(3) of the IGST Act, 2017, states that the place of supply in regards to the immovable property is the same location or house from which the services will be provided under the subject.

GST On Rent From Residential Property

Much like the earlier regime, if the residential property is on rent for residential purposes only, it is exempted from the tax paid under the new GST act.

According to the ‘notice no. 12/2017, Central Tax (Rate)’, services by way of renting of residential property for the sole purpose of residential use attract ‘Nil’ GST. On the other hand, income generated from the residential dwellings used for a commercial purpose is taxable under GST.

Increase In Exemption Limit

One of the key changes in GST from the earlier tax system is the increase in the minimum amount. When earlier the exemption limit was Rs 10 lakh, under the GST tax system, it has been increased to Rs 20 lakh.

Therefore, an individual who has an income of Rs 20 lakh or above in a year from commercial rent is liable to pay tax under GST at a rate of 18 per cent according to the gst tax rate list.

Accordingly, any landlord or property owner generating an annual income of more than Rs 20 lakh from renting a property for commercial purposes is bound to pay GST on the revenue he generated. Therefore, with the application of GST, many people get away from the umbrella of indirect tax mechanisms and are now free from the consequences of the previous taxation method.

Final Words

Therefore, it is quite clear that the landlord or owner of the property can increase the rent amount when the property is being used as a commercial purpose. On the other hand, the landlord cannot increase the rent amount when the property is being used for residential purpose only.

However, 10 per cent of TDS is applicable for both commercial and residential properties if the sum of rent exceeds Rs 1.80 lakhs annually. It is also to be noted that GST does not apply to TDS.

So, the individual paying GST on rent can avail the tax credit as well. But the owner or landlord of the leased dwelling has to increase rent to collect the GST amount as per the contract.

In this case, the landlord may ask for an increase in rent to pay the excess of what GST being charged. This is entirely legal, and the landlord has to pay the GST on time to avoid consequences. Failure to do that will certainly attract penal charges and can go up to imprisonment as well.