GST on rental income

GST on rental income

Renting immovable property in India is a taxable service and would attract GST @18%. However, rental income from residential property is exempted from GST subject to certain conditions. In this article, we will discuss important aspects in regard to GST on rental income from shop, office, or residence. Hope you will enjoy reading this.

Renting in relation to immovable property means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of the immovable property.

Rental income from residential property

As per entry no. 12 of exemption notification no. 12/2017 dated 28.06.2017, services by way of renting of residential dwelling for use as a residence are exempted from GST levy. However, this exemption notification shall not apply to renting residential dwelling for business purposes.

Thus, a person has to pay GST on rental income from residential dwelling only if,

(i) He is required to take GST registration, and

(ii) Property is given on rent for commercial purposes.

Illustration -

• Residential property is given on rent to OYO for use as a hotel – Such transaction will not be eligible for exemption and thereby taxable.
• Residential property is given on rent partly for commercial purpose and partly for residential purpose – Such transaction will be taxable.

Rental income from commercial property

Rent received from commercial property (shops, offices, land, etc) came under the Goods & Services Tax purview and would attract GST at the rate of 18%. Therefore, if earning of a commercial property owner exceeds the GST threshold limit, he will have to register under the Goods & Services Tax regime and pay taxes.

Rental income from precincts of religious or charitable trust

The rental income of the charitable/ religious trust registered under the Income Tax Act from a religious place meant for the public is exempted from GST. But the rental income of the trust shall be liable to GST at a rate of 18% in the following cases-

(i) The room is given on rent for Rs.1000 per day or more.

(ii) Shops and other spaces for business is given on rent for Rs 10,000 per day or more

(iii) Community hall or any open area is given on rent for Rs 10,000 per day or more.

illustration:

Laxmi Devi Foundation, a religious trust, owns and manages a temple in its locality. It rents the commercial shops located in the precincts of the temple for a rent of Rs 11,000 per month per shop. The rent so received in the given case will be taxable under GST as such services are exempt only when the consideration is less than Rs 10,000 per month.

SAC code for rental or leasing services

What are registration provisions in GST for rental income?

It is mandatory for every person in India to register for GST if,-

• His aggregate turnover crosses the exemption limit or
• He falls in compulsory GST registration criteria

GST exemption limit for service providers is Rs.20 lakhs. While computing exemption limit, rental income from all property including other taxable supply would be counted. Accordingly, it is necessary for the landlord of the property to get registered under the GST regime if his rental income with other taxable supplies exceeds Rs 20 lakhs.

While applying for GST online, the owner of the property is required to upload a soft copy of the following documents on the Common portal -

• PAN card of the landlord
• Aadhaar card of the landlord
• Canceled cheque copy/ latest bank statement copy
• Address proof.

How is GST computed on rental income?

The computation of GST on rent depends on whether a supply is interstate or interstate.

Intra-state supply

• Place of supply ( location of immovable property) and location of the supplier (location of landlord) is in the same state.
• CGST@9% and SGST @9% would be applicable
• If the property owner and property is located in the same state and rental income from the property is Rs 300,000. Compute GST and total invoice amount.

Inter-state supply

• Place of supply (location of immovable property) and location of the supplier (location of landlord) is not in the same state.
• IGST @18% would be applicable
• For example, a property owner is registered in Delhi, and he renting out his property situated in Shimla for Rs 300,000 per month. Compute GST and total invoice amount.

TDS deduction on rent part

1. Any person other than an individual or HUF who is responsible for paying rent to a resident in excess of Rs 2,40,000 during FY is required to deduct TDS at the prescribed rate under section 194I of Income Tax.

2. All individuals or HUFs paying monthly rent to a resident in excess of Rs 50,000 during FY are liable to deduct TDS under section 194-IB of Income Tax.

Note, TDS is to be deducted on the rent part only and not on the GST part. 

GST composition scheme for landlords

A composition scheme is an optional scheme of levy of tax available for small taxpayers in the GST regime. Earlier, the scheme was available to only the suppliers of goods.

However, notification no 2/2019-Central Tax (Rate) notified the composition scheme for the supplier of services also from 1 April 2019. Under this scheme, tax is levied at a reduced rate with fewer GST compliances.

Service providers having an annual turnover of less than Rs 50 lakhs can opt for a composition scheme in GST. Landlord opting for a composition scheme is required to pay GST at a rate of 6% subject to certain conditions & restrictions.

Whether GST paid on rent can be claimed as an input tax credit?

Input tax credit (ITC) means taxes paid on purchases of goods or services can be claimed at the time of payment of taxes on output. Similarly, a tenant can claim credit of GST paid on rent while paying tax dues if he satisfies the below conditions-

 (i) Possession of GST compliant invoice or debit note issued by the landlord

(ii) Services have been received

(iii) Relevant GST returns have been filed

(iv) GST has been deposited by the landlord to the Government

Renting of co-owned immovable property

In re Rabi Sankar Tah, AAR West Bengal ruled that the co-owners of jointly immovable property cannot be treated as an association of persons for determining the liability and requirement of registration under the GST Act where their income from renting is separately ascertainable and assessed for income tax individually at the hand of each co-owner.

Whether property tax and other statutory levies will be included in rental value?

In re Midcon Polymers (P.) Ltd., GST AAAR Karnataka ruled that while computing value of rental income,

• the appellant cannot deduct the amount paid as property tax to the Municipal Authority or any other statutory levies levied under any law for the time being in force, other than the CGST, SGST, IGST and Compensation Cess, subject to the condition that it is charged separately by the appellant.
• the notional interest earned on the security deposit is not to be taken into consideration.

Recommended

• TDS provisions on rent under section 194I
• Journal entry for rent paid