GST on renting of property is applicable on the residential as well as non-residential properties. However, the applicability of GST varies on the purpose of use of the property as well as whether the landlord and tenant has GST Registration or not.
GST on renting of property: Reason for applicability
The GST on renting of property is applicable because GST law treats renting out of property as a supply of service. Hence, GST is applicable on renting out the property.
Applicability of GST on renting of property
The applicability of GST on renting of property is divided into three parts:
Firstly, tax on rental income before the GST regime
Secondly, tax on renting out of property after the GST regime till 17th July, 2022
Lastly, tax on renting out of property from 18th July, 2022.
Also Read: GST on Land and Building
Tax on rental income before GST regime
Before the GST regime, there was the applicability of service tax on renting out of the property. This is to say that before the GST regime, the landlord had to obtain service tax registration if his total taxable services (which includes renting out of property) exceeds Rs. 10 lacs per year. In other words, if the taxable services did not exceed Rs. 10 lacs, there was no requirement to obtain service tax registration.
Now, comes the applicability of the service tax part. Before the GST regime, the service tax was applicable @15% only on renting out commercial properties. Therefore, if the renting of property was for residential purposes, then there was no applicability of service tax.
Tax on renting out of property after the GST regime till 17th July, 2022
After the introduction of the GST regime on 17th July, 2022 the GST on renting property was applicable same as the service tax. That is to say, the GST was applicable only on renting out commercial properties. Accordingly, there was no GST applicable on renting out residential properties. The rate of Goods and services tax in India applicable, however, is 18%.
Also Read: GST Registration on the basis of State & Turnover
Tax on renting out of property from 18th July, 2022
Through the 47th GST Council Meeting, certain changes were made on renting out of property. And, through the recommendations of this meeting, Goods and services tax is now made applicable on renting out of commercial as well as residential properties. However, not all types of residential properties are subject to GST.
Note:
A person having earning more than the threshold limit (including income from renting out of property) has to compulsorily obtain registration under GST.
Scenarios for GST on renting out of property
Renting out of commercial property for business purpose where both landlord and tenant are registered under GST
In case where both the landlord as well as tenant have registration under the GST, there will be applicability of GST on renting out of property for business purpose. This is so because the renting out of property is for business purposes.
Note 1:
In this case, the GST will be payable under the Forward Charge Mechanism or Normal Charge Mechanism.
Renting out of commercial property for business purpose where landlord has GST Registration but the tenant has no such registration
If the renting out of property is for commercial purposes and the landlord has GST registration, then GST will be applicable irrespective of the fact whether the tenant has GST registration or not.
Case of renting out of commercial property where landlord is not registered but tenant has GST registration
There will be no applicability of Goods and services tax (GST) where the landlord does not have GST Registration. Accordingly, if the landlord has GST registration and renting out of property is for non-personal/commercial purpose, then only GST will be applicable.
Renting out of property for personal use where both landlord and tenant are registered/unregistered under GST
If the renting out of property is for personal use, then there is no applicability of GST. Further, this is irrespective of the fact whether both the landlord as well as tenant have registration under GST or not. Accordingly, if the proprietor of the firm having registration under the GST rents out the property to the tenant who is also having registration under GST but the purpose of using the property is personal, then no GST will be applicable.
Also Read: What is the impact of ITC on Capital Goods?
Note:
Even if either of the landlord or tenant does not have GST registration and the renting out of property is for personal use, then also there will be no applicability of GST.
Renting out of residential property for non-personal purposes where both landlord and tenant have GST Registration
In case the renting out of the residential property is for non-personal purposes and the landlord as well as tenant, have GST registration, then there will be applicability of GST. In other words, the GST will be applicable in the case of renting out the residential property for commercial purposes. Further, GST is applicable even if the renting of property is wholly or partly.
Note:
In this case, GST will be applicable as per Reverse Charge Mechanism.
Renting out of residential property for non-personal purposes where both landlord and tenant do not have GST Registration
If the renting out of property is for non-personal use but both the landlord and tenant do not have GST Registration, then there is no need to pay GST. This is so because neither landlord nor tenant has GST liability. However, if their taxable income surpasses the threshold limit, then they must obtain GST registration and accordingly, pay the GST, if applicable.
Place of supply for charging GST
There can be cases wherein the landlord resides in a State different from where the rented property is situated. Further, there can be also cases where both landlord resides in the State different from the tenant. And, not only this, there can be cases wherein both the landlord and tenant resides in the same State in which there is the property. Accordingly, the place of supply for charging GST can be well understood through the following cases.
1) Landlord has GST Registration in State different from where the rented property is situated
In this case, the place of supply will be the place of property. Accordingly, IGST will be applicable.
For example, proprietor of Kuber Industries has GST Registration in Delhi and has given his building situated in Hyderabad on rent for business purpose. In this case, IGST @18% will be applicable and the proprietor does not to obtain GST Registration in Hyderabad.
2) Both the landlord and tenant have GST Registration in the same State of location of property
In this case, SGST and CGST @9% each will be applicable.
Example, the landlord Ram and tenant Shyam both have GST Registration in Delhi and let out of property is also in Delhi. Accordingly, SGST and CGST @9% will be applicable. If the tenant do not happen to have GST Registration, then he will not be able to claim ITC.
3) Landlord has GST Registration in the same State of let-out property but tenant has registration in different State
If the landlord has GST Registration in the same State as the let-out property, then SGST and CGST @9% each will be applicable. Having said that, it is irrespective of the State of GST Registration of the tenant.
Also Read: Rules Related to Setting Off of Input Tax Credit
Take, for example, the landlord Mona has GST Registration in Bangalore and has given her commercial property in Bangalore on rent to the tenant Sheena. Sheena does not have GST Registration in Bangalore but in Chennai. In this case, the CGST and SGST @9% each will be applicable. Sheena, in this case, will not be able to claim ITC unless she registers her business under GST in Bangalore.
Conclusion
| Type of property | Landlord is | Tenant is | Applicability of GST |
|---|---|---|---|
| Commercial Property | Unregistered | Registered / Unregistered | No |
| Commercial Property | Registered | Registered / Unregistered | Yes, GST applicable under FCM |
| Residential Property used for personal purpose | Registered / Unregistered | Registered / Unregistered | No |
| Residential Property used for non-personal purpose | Registered / Unregistered | Registered | Yes, GST applicable under RCM |
| Residential Property used for non-personal purpose | Unregistered | Unregistered | No |
Commercial property:
a) If the landlord has GST Registration, there will be 18% GST under the forward charge basis.
b) If the landlord does not have GST Registration, then there is no GST on commercial property.
c) Whether the tenant has GST Registration or not – Does not matter and no GST is applicable.
Residential Property
a) The landlord has GST registration or not – Does not matter and no GST is applicable.
b) If the tenant has GST Registration, no GST when it is renting is to a private person or for personal use.
c) 18% GST on renting of the residential unit if the renting is to to business entity.
