![]()
GST
on Renting Residential Properties: A Simplified Overview
In GST law, the term ‘renting’ isn't specifically defined.
However, Notification No. 12/2017-Central Tax (Rate) gives a clear idea. It
defines renting of immovable property as letting someone use, enter, or occupy
a property, either fully or partially, with or without transferring possession
or control. This includes various forms like leasing and licensing.
GST is charged on goods and services provided for business
purposes. This includes renting. According to Paragraph 2(a) of Schedule II,
any lease or letting out of buildings—whether for commercial, industrial, or
residential purposes—is considered a supply of services.
So, whether a landlord rents out one flat or twenty, it
counts as engaging in business under GST. However, GST registration is required
only if the rental income exceeds a certain threshold.
Renting of Residential Properties
Before July 18, 2022
Before July 18, 2022, renting residential properties for
living purposes was exempt from GST. This exemption applied to all tenants,
whether they were registered or not. The focus was on the use of the property
for residence.
However, the 47th GST Council Meeting on June 28-29, 2022,
suggested changes. It proposed that renting residential properties to business
entities should be taxed. This was because many companies rent homes for their
employees, and this was previously exempt.
Renting of Residential Properties
from July 18, 2022
Following these recommendations, the CBIC issued
Notification No. 04/2022-Central Tax (Rate) on July 13, 2022, changing the
rules. From July 18, 2022, renting a residential property remains exempt from
GST if it’s used as a residence, except when the tenant is a registered person.
Notification No. 05/2022-Central Tax (Rate) introduced a reverse charge
mechanism. This means that GST for renting to a registered person must be paid
by the recipient under reverse charge.
Clarification for Proprietors
There was some confusion about whether a registered
proprietor renting a residential property for personal use would be taxed. This
was clarified in the 48th GST Council Meeting. On December 30, 2022,
Notification No. 15/2022-Central Tax (Rate) was issued, adding an explanation
to the exemption rules:
Explanation:
The exemption applies to renting a residential property to a registered person
if:
1.
The person is a proprietor and rents
the property for their personal use, and
2.
The renting is done for their
personal needs, not for their business.
In simple terms, if a registered proprietor rents a home for
personal use, it’s exempt from GST. But if the property is used for business
purposes, GST will apply.
Summary:
- Residential
Property for Business:
Taxable under GST if rented for business purposes. Reverse charge applies
if the tenant is a registered person.
- Residential
Property for Personal Use:
- If Tenant is Registered: Taxable under GST (reverse charge).
- If Tenant is a Proprietor Renting Personally: Exempt from GST.
- If Tenant is Unregistered: Exempt from GST.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
Click here
