How Will The New GST Rule Affect Renting an Immovable Property From 18 July 2022?

The dynamics of renting residential property under GST has altered starting 18th July 2022.

The decision to include the rental of residential premises into the tax net was adopted at the 47th GST Council Meeting. Renting an immovable property is considered a provision of service and therefore attracts GST @ 18 percent (SAC Code – 9963/9972).

EARLIER - Applicability of GST on residential property up to 17th July 2022

~GST was *not* applicable if the residential property was leased out to any person (whether a registered or unregistered person under GST) up to 17th July 2022.

~Liability to pay GST did not arise since it was explicitly exempted.

NOW - post 18 July 2022

Applicability of GST on residential property w.e.f. 18th July 2022

~GST shall be applied if the residential property is leased out to a registered person under GST w.e.f. 18th July 2022 (i.e GST applicable if your Tenant is registered under GST) (i.e GST applicable if your Tenant is registered under GST).

~Liability to pay GST @ 18 percent under the reverse-charge method shall arise on the recipient(Tenant) (Tenant).

_(GST shall NOT be applicable/exempted if the residential property is leased out to an unregistered person under GST w.e.f. 18th July 2022) .

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*IMPACT on LANDLORD of Residential Property [If the renter is registered under GST]*

~If the supplier (landlord/lessor) is registered under GST, then it will be displayed as outbound supplies subject to be taxed under the reverse charge method. The receiver (tenant/lessee) is responsible for paying GST, hence the landlord has no extra GST obligation. As per section 17(2), there is no possibility of claiming the input tax credit since the outgoing supply is subject to RCM taxation.

*IMPACT on Renter of Residential Property [If the tenant is GST-registered] *

When a tenant who is registered for GST rents a residential property from any individual (registered or unregistered), GST is applicable under the Residential Tenancy Act. The beneficiary (Tenant/lessee) of the service is responsible for the 18 percent GST tax. The receiver will also be eligible to claim the ITC (Input Tax Credit) of the GST paid through reverse charge since the payment of rent is a business expense and is not on the list of ITCs that are banned under section 17. (5).

*IMPACT ON LANDLORD IF NOT REGISTERED FOR GST*

The receiver (Tenant) is responsible for paying GST, hence there is no new GST responsibility or compliance under GST.

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*Scenario 1*

When a *Company, LLP, Firm, AOP, or BOI*, etc. acquires a residential home for the purpose of renting it to workers, it is considered a business expense. The GST will be paid by RCM, and the ITC may be recovered for the GST paid under reverse charge.

*Scenario 2* When a *Composition Dealer* who is registered for GST rents a residential home for use as a primary residence, it will be deemed a business expense. GST will be paid via RCM, however a composition dealer cannot claim the ITC for the GST paid under reverse charge under section 10(4).

*Scenario 3* When a *Person* who is registered under GST as a *Proprietorship Firm* obtains a residential home on rent for himself/herself/family, it is deemed a personal expense and not a business expense of a proprietorship company. GST will be paid by RCM, however the ITC for GST paid under reverse charge cannot be recovered since section 17 prohibits it (1). To avoid GST obligation, individuals are advised NOT to rent residential property in the name of their company (sole proprietorship).

When a residential residence is rented for business purposes by a registered person, it will be handled the same as a commercial unit. If the landlord is unregistered, neither the landlord nor the renter must collect or pay GST. If the landlord is registered, GST will be paid on a forward charge basis, and the beneficiary will be able to claim the corresponding ITC.

As a Landlord, you should confirm with your Tenants whether or not they are GST-registered, and add GST to the Rent amount based on the aforementioned instances.