GST on renting of Residential Flats to Registered tenants

The dynamics of renting residential property under GST will change from 18th July 2022. The decision to bring the renting of residential dwellings under the tax net was taken in the 47th GST Council Meeting. Renting an immovable property is considered a supply of service and it attracts GST @ 18% (SAC Code – 9963/9972).

Old situation

Up to 17th July 2022, GST was not applicable/exempted if the residential property was rented out to any person (whether a registered or unregistered person under GST). Liability to pay GST did not arise as it was specifically exempted vide CGST (Rate) Notification no. 12/2017 dated 28.06.2017

Change from 18th July 2022

1. GST will be applicable if the residential property is rented out to a registered person under GST.

2. Liability to pay GST @ 18% under the reverse charge mechanism will arise on the recipient (tenant).

3. The exemption to no GST on rent from letting out residential property has been withdrawn vide CGST (Rate) Notification no. 04/2022 dated 13.07.2022. Same has been notified under RCM vide CGST (Rate) Notification no. 05/2022 dated 13.07.2022.

4. GST will not be applicable and remain exempted if the residential property is rented out to an unregistered person under GST.

5. Liability to pay GST will not arise as it continues to be specifically exempted vide CGST (Rate) Notification no. 12/2017 dated 28.06.2017

Impact on Landlord of Residential Property [If the tenant is registered under GST]

1. If the supplier (landlord/lessor) is registered under GST, then it will be shown as outward supplies liable to be taxed under the reverse charge mechanism (RCM). Liability to pay GST is on the recipient (tenant/lessee) hence no additional GST liability on Landlords.

2. As per section 17(2), there arises no question of availing of the input tax credit as the outward supply is liable to be taxed under RCM. Earlier the same was shown as an exempted supply in Table 8 but w.e.f. 18th July 2022 it will be shown as B2B supply attracting RCM in Table 4.

If the supplier (landlord/lessor) is not registered under GST

Liability to pay GST is on the recipient (tenant/lessee) hence no additional GST liability or any compliance under GST.

Impact on Tenant of Residential Property [If the tenant is registered under GST]

1. When a tenant is registered and takes a residential property on rent from any person (registered or unregistered person) GST will be applicable under RCM.

2. Liability to pay GST @ 18% will be of the recipient (tenant/lessee) of service.

3. The recipient will also be able to claim the ITC of the GST paid under reverse charge as the payment of rent will be a business expenditure and the same is not included in the list of blocked ITC u/s 17(5).

Few Examples

A. When a Company, LLP, Firm, AOP, BOI, etc. takes a residential dwelling for the purpose of residence on rent for employees it will be considered as an item of business expenditure. GST will be paid under RCM and the ITC of the GST paid under reverse charge can be claimed.

B. When a composition dealer who is registered under GST takes a residential dwelling for the purpose of residence on rent then it will be considered as an item of business expenditure. GST will be paid under RCM but the ITC of the GST paid under reverse charge cannot be claimed as per section 10(4) by a composition dealer.

C. 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.

D. When a residential dwelling is taken by a registered person on rent for commercial purpose it will be treated at par with the commercial unit. If the landlord is unregistered then GST shall not be levied and paid by either the landlord or the tenant. If the landlord is registered under GST then GST will be charged on forward charge basis and the recipient can take the ITC of the same.

CA Harshad Shah, Mumbai (harshadshah1953@yahoo.com)


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