NEW DELHI: If you are a salaried employee, and have taken a flat on rent, the recently introduced 18% goods and service tax under the reserve charge mechanism will not apply to you. From 18 July, a tenant is required to pay GST at 18% for renting a residential property if he/she is registered under GST. However, the GST paid by the tenant can be claimed through Input Tax Credit.
An Input Tax credit means claiming GST paid on purchasing Goods and Services can be set off against future tax liability.
While commercial properties such as offices or retail space on lease earlier attracted GST, the lease of residential properties by companies or individuals did not attract any tax. Following the 47th GST Council recommendations, residential property given out on lease or rent attracts GST under certain circumstances.
“With this change, any residential property being used by a company/person for the purposes of employee accommodation, guest house or office use has also been subjected to 18% GST. For example, a professional or company renting an apartment for their office are liable to pay GST on the rent. The GST would be paid by the tenant. The Government, however, has left a few exceptions. For instance, if the property is being used as residence by the tenant or if the landlord is not registered under the GST ( i.e., the landlord’s total income does not exceed the 20 lakh rupees threshold in a financial year),” said Jayant Bajaj, Associate, SKV Law Offices.
To keep things simple, the liability to deposit GST has fallen on the tenant. The landlord is neither required to obtain any registration under GST nor make any payment of GST on such renting service.
“From the landlord’s perspective, things are fairly simple. Whether or not the tenant is registered under GST, he does not have to pay GST on this renting service. Please bear in mind, there’s no basic threshold over which GST is to be paid. GST has to be paid by the tenant on the first rupee of rent paid,” said Ankit Jain, Partner, Ved Jain & Associates.
The annual threshold limit for registration is a turnover of Rs 20 lakh for service providers (say, a business consultant) and Rs 40 lakh for a supplier of goods.
For instance if a corporate entity has taken a residential flat on rent for its employee, and here the landlord is also a GST-unregistered individual. In such a scenario GST will have to be paid by the corporate entity, which is the tenant. What this means is that apartments for senior executives rented by companies will now cost more as it will attract an 18 per cent Goods and Services Tax (GST).
For example, if a landlord rents an apartment to a company for its executive at Rs 1 lakh per month, a GST of Rs 18,000 will be charged monthly. Here the lessee will have to bear the cost and not the landlord.
“For private corporates, I believe the impact of this change will be fairly limited. Corporate leases for residential premises is not a preferred mode these days. Such leases are usually limited to senior management or for expats coming into India. Even in cases, where GST would have to be paid, input tax credit would be available to the corporates limiting the impact to the bottomline of the organisation,” said Ankit Jain, Partner, Ved Jain & Associates.
But if both the flat owner and the tenant are unregistered parties, the new GST norms will not apply.
“Now when an individual who is registered under GST as a proprietorship concern takes a residential dwelling for the purpose of residence on rent for himself/herself/family then it will be considered as an item of personal expenditure and not the business expenditure of a proprietorship concern. GST will be paid under RCM but the ITC of the GST paid under reverse charge cannot be claimed as it is blocked per section 17(1). It is advisable for individuals to not take residential property on rent in the name of the business (proprietorship concern) to avoid GST liability,” said CA Ankita Khetan.
And lastly, if an unregistered person under GST has given a residential house property to an unregistered person under GST on a monthly basis for use for residential purpose, the tenant is not liable to pay GST.
Will it affect the residential market?
“The recent decision by the GST Council to impose an 18% GST on residential properties rented to individuals who are registered under GST (mandatory registration for anyone who makes a supply of service over Rs 20 lakh and supply of goods over Rs 40 lakh) will have a significant impact on the rental real estate market in India. The decision may hinder the expansion of rental real estate in India by increasing the tax burden on businesses that rent out residential properties to use as accommodation and guest houses for their employees. While the change hurts businesses and GST-registered individuals, it has no effect on people whose rental transactions fall below the threshold required to be considered a registered GST member,” said Vivek Rathi, Director – Research at Knight Frank India.
An Input Tax credit means claiming GST paid on purchasing Goods and Services can be set off against future tax liability.
While commercial properties such as offices or retail space on lease earlier attracted GST, the lease of residential properties by companies or individuals did not attract any tax. Following the 47th GST Council recommendations, residential property given out on lease or rent attracts GST under certain circumstances.
“With this change, any residential property being used by a company/person for the purposes of employee accommodation, guest house or office use has also been subjected to 18% GST. For example, a professional or company renting an apartment for their office are liable to pay GST on the rent. The GST would be paid by the tenant. The Government, however, has left a few exceptions. For instance, if the property is being used as residence by the tenant or if the landlord is not registered under the GST ( i.e., the landlord’s total income does not exceed the 20 lakh rupees threshold in a financial year),” said Jayant Bajaj, Associate, SKV Law Offices.
To keep things simple, the liability to deposit GST has fallen on the tenant. The landlord is neither required to obtain any registration under GST nor make any payment of GST on such renting service.
“From the landlord’s perspective, things are fairly simple. Whether or not the tenant is registered under GST, he does not have to pay GST on this renting service. Please bear in mind, there’s no basic threshold over which GST is to be paid. GST has to be paid by the tenant on the first rupee of rent paid,” said Ankit Jain, Partner, Ved Jain & Associates.
The annual threshold limit for registration is a turnover of Rs 20 lakh for service providers (say, a business consultant) and Rs 40 lakh for a supplier of goods.
For instance if a corporate entity has taken a residential flat on rent for its employee, and here the landlord is also a GST-unregistered individual. In such a scenario GST will have to be paid by the corporate entity, which is the tenant. What this means is that apartments for senior executives rented by companies will now cost more as it will attract an 18 per cent Goods and Services Tax (GST).
For example, if a landlord rents an apartment to a company for its executive at Rs 1 lakh per month, a GST of Rs 18,000 will be charged monthly. Here the lessee will have to bear the cost and not the landlord.
“For private corporates, I believe the impact of this change will be fairly limited. Corporate leases for residential premises is not a preferred mode these days. Such leases are usually limited to senior management or for expats coming into India. Even in cases, where GST would have to be paid, input tax credit would be available to the corporates limiting the impact to the bottomline of the organisation,” said Ankit Jain, Partner, Ved Jain & Associates.
But if both the flat owner and the tenant are unregistered parties, the new GST norms will not apply.
“Now when an individual who is registered under GST as a proprietorship concern takes a residential dwelling for the purpose of residence on rent for himself/herself/family then it will be considered as an item of personal expenditure and not the business expenditure of a proprietorship concern. GST will be paid under RCM but the ITC of the GST paid under reverse charge cannot be claimed as it is blocked per section 17(1). It is advisable for individuals to not take residential property on rent in the name of the business (proprietorship concern) to avoid GST liability,” said CA Ankita Khetan.
And lastly, if an unregistered person under GST has given a residential house property to an unregistered person under GST on a monthly basis for use for residential purpose, the tenant is not liable to pay GST.
Will it affect the residential market?
“The recent decision by the GST Council to impose an 18% GST on residential properties rented to individuals who are registered under GST (mandatory registration for anyone who makes a supply of service over Rs 20 lakh and supply of goods over Rs 40 lakh) will have a significant impact on the rental real estate market in India. The decision may hinder the expansion of rental real estate in India by increasing the tax burden on businesses that rent out residential properties to use as accommodation and guest houses for their employees. While the change hurts businesses and GST-registered individuals, it has no effect on people whose rental transactions fall below the threshold required to be considered a registered GST member,” said Vivek Rathi, Director – Research at Knight Frank India.
:quality(70)/cloudfront-us-east-1.images.arcpublishing.com/tronc/MT32UR36GFEUFB446QMHEUA3T4.jpg)
