A new GST rule on house rent went into effect in July. According to Mahesh Jaising, Partner, Leader – Indirect Tax at Deloitte India, “renting residential properties up to 17th July 2022 was free regardless of the tenant’s status, whether the service provider is registered or unregistered,” means renting out the residential property was excluded from everyone. From 18th July 2022, a registered renter would be subject to the new GST rule on house rent via the reverse charge method.
The New GST Rule on House Rent Impact on Rental Income of a Residential House Property has been provided to a registered person (Under GST) under GST Law with effect from 18.07.2022.
In its 47th meeting on the 28th and 29th of June’2022, the Council recommended to the government that GST be imposed a new GST rule on house rent in which a person who has provided residential property to the registered person (GST Registered Person) for the rental of residential dwellings (Living) with effect from 18.07.2022. Before the new GST rule on house rent, a person given a residential property for non-commercial use is free from GST Tax per Notification No.12/2017-C.T.
Now, under the recommendations of the 47th GST Council, CBIC has issued Notification No.4/2022- Central Tax (Rate), dated 13th July 2022, removing such exclusions.
Residential property GST
GST is being debated these days, namely whether or not a paid worker should pay according to the new GST rule on house rent. According to tax experts, GST was applied on the rent of a business property until 17th July 2022, but beginning 18th July 2022, GST would be imposed if the home is rented or leased by a GST-registered person. The renter should pay 18% GST on a reverse charge, as proposed at the 47th GST Council meeting.
They can deduct this amount from their GST returns when they pay sales tax. Mahesh Jaising has responded to the new GST law on property rent. “Renting residential premises was prohibited until 17th July, regardless of the tenant’s status or whether the service provider or consumer was registered or unregistered. This meant that no one could rent out their home property. From 18th July 2022, registered renters would be liable to GST on residential rents using the reverse charge mechanism.”
Whether the tenant is registered or unregistered, the landlord is not required to pay any taxes. The difference is that a registered renter gets no benefit from the new GST rule on house rent exemption on residential premises. A person not registered under the new GST rule on house rent which has given the property rented out to a person registered under the new GST rule on house rent will pay GST through the Reverse Charge Mechanism.
If a residential property owner is unregistered under the new GST rule on house rent and transfers such residential property to a registered person, the tenant is obligated to pay GST tax of @18% under Reverse Charge Mechanism (RCM) as per Notification No. 05/2022-Central Tax Rate) dated 18.07.2022. Archit Gupta, Founder, and CEO of Clear, echoed Deloitte India expert, saying, “If average salaried individual rents or leases a residential property or flat, they are not required to pay GST.
However, a GST-registered person who conducts business or practices a profession must pay 18% GST on any rent paid to the owner. Such individuals may claim an input tax credit for GST paid on residential property rent or lease.” According to the new GST rule on house rent, ‘Persons’ encompass persons and business organizations. GST registration is required when a person conducts a business or profession with an annual turnover that exceeds the GST law’s threshold level.
Restriction varies on the type of the supply and the state where the primary source of supply is situated. The annual ceiling is Rs. 20 lakhs if the individual provides services. The maximum is reduced to 10 lakhs if registration is obtained from a northeaster or particular category state. If you are a composition taxable person, you cannot claim the input tax credit for rental expenditures but may still be required to pay GST on a reverse charge basis.
Mahesh Jaising, speaking on the new GST rule on house rent, stated, “The move would impact corporations and taxpayers who have rented out residential units to their employees. GST will now be needed to be paid by such registered taxpayers under reverse charge, which may have an impact on the P&L because the department may dispute the credit’s validity, classifying it as spent for personal use. The industry should carefully assess this credit eligibility.”