When it comes to renting property in India, understanding GST (Goods and Services Tax) on rent can save you from unnecessary confusion. Whether you’re a landlord or a tenant, this blog will guide you through the essential aspects of GST on rent, broken down into simple and relatable terms.
What is GST on Rent?
GST is a tax applied to the supply of goods and services, including rental income from properties. However, it is not as straightforward as it may sound. The applicability of GST depends on the type of property and its usage:
- Residential Properties: If rented for residential purposes, no GST is charged.
- Commercial Properties: GST is applicable if the property is rented for business or commercial activities
When Does GST Apply?
GST on rent applies only if:
- The landlord’s total annual turnover (including rental income) exceeds ₹20 lakh (or ₹10 lakh in special category states).
- The property is used for business or commercial purposes.
For instance:
- If you rent out a residential flat to a family for living, no GST applies.
- However, if you rent a residential flat to a business for office use, GST applies.
GST Rates for Rental Income
The GST rates for renting properties are as follows:
- Residential Property: Exempt from GST if rented for living purposes.
- Commercial Property: 18% GST is applicable.
Example: A shop rented for ₹50,000 per month will attract 18% GST. This means an additional ₹9,000, making the total rent ₹59,000
Input Tax Credit (ITC)
- Tenants: Can claim ITC on the GST paid if the property is used for taxable business purposes.
- Landlords: Cannot claim ITC on the cost of constructing the property but can claim it on maintenance and other expenses.
Common Scenarios and Examples
Example 1: Residential Property
A landlord rents a flat to a family for ₹25,000 per month. Since it is for residential purposes, no GST applies.
Example 2: Commercial Property
A landlord rents a shop to a retailer for ₹60,000 per month. GST of 18% applies:
- Rent = ₹60,000
- GST = ₹60,000 × 18% = ₹10,800
- Total = ₹70,800
Example 3: Residential Property Used for Business
A residential flat is rented to a startup as an office. Although it is a residential property, GST applies because it is used for business purposes.
Example 4: Reverse Charge Mechanism (RCM)
A GST-registered company rents a hall for an event. Under RCM, the tenant pays GST directly to the government.
Documentation and Compliance
For landlords, it is essential to maintain proper documentation to comply with GST regulations:
- GST Registration: Register for GST if your total turnover exceeds the threshold.
- Invoice: Issue GST-compliant invoices with the following details:
- GSTIN of both landlord and tenant
- Description of the rental service
- Rent amount and GST charged
- Filing Returns: Include rental income in GSTR-1 and pay the tax through GSTR-3B.