Impact of GST on Rent

The implementation of Goods and Services Tax (GST) has chalked out a structured approach to collect taxes from various sectors.

Rent has been the source of Income for many over the years. In this article, let us talk about the impact of implementation of GST on rent, Let us also see if GST varies for commercial properties and residential properties.

What was the situation in the Pre-GST era?

Pre-GST, the landlord had to obtain a service tax registration if his total taxable service (including the rental income from all properties) exceeds Rs. 10 lakh per year. As long as the rental income (from all the properties that have been rented-out) does not exceed Rs 10 lakh per year, the landlord would not be attracted to service tax.

Under previous tax regime, commercial properties alone that are let-out would attract service tax. This applies even if a residential property is used for commercial purposes. Service tax was 15% of the rent for commercial properties. To add, rental income from residential properties did not attract service tax

Will renting out a property attract GST now?

According to the GST Act, renting out of an immovable property would be treated as a supply of services. GST, however, will be applicable only to certain types of rent such as:

When a property is given out on lease, rent, easement, or licensed to occupy

When any property is leased out (or let out) including a commercial, industrial, or residential property for business (either partly or wholly)

These type of renting is considered as a supply of services and thus would attract tax.

What is the effect of GST on rent?

When you rent out a residential property for residential purpose, it is exempt from GST. Any other type of lease or renting out of immovable property for business would attract GST at 18%, as it would be treated as a supply of service.

After GST was implemented, the threshold limit for applicability of GST has been increased to Rs.20 lakh from Rs.10 lakh that was in the pre-GST era. This makes many landlords – who were earlier covered under the service tax regime to be at ease now up to another Rs.10 lakhs earned

No ITC is available for goods/services for construction of an immovable property on his own account. Even if such goods/services are used in the course or furtherance of business, ITC will not be available.

Further if builder is making property for you and you are paying GST on consideration the builder shall get ITC and he can pass on benefit to in terms of price of the property but you cannot claim ITC on own account in this.

If a builder can purchase raw materials for construction of new building and pay GST on those materials and subsequently claim a set off against the GST which he has to deposit with government which he collected from flat buyers then in your case too, why cannot you avail GST input tax credit

Government cannot discriminate between assessees just because one assessee is a builder and another is a company

Btw i have not come across any builder as yet who gives benefit of input tax credit to flat buyers and poor buyer has to bear full 12% GST on flat purchase

If you are buying an under-construction property, it is considered as availing a service from the builder; hence, you are supposed to pay GST on it. According to the GST law, construction of a building, complex or a part of it, intended for sale to a buyer, attracts GST on the sale price.

According to CBEC, “effective rate of GST payable on purchase of under-construction residential or commercial properties from builder involving transfer of interest in land or individual share of land to the buyer is 12% with full input tax credit (ITC).”

Consideration which doesn’t constitute transfer in land or undivided share of land as part of consideration, such as construction services provided by a sub-contractor to the builder, attract GST at the standard rate of 18% with full ITC.”

Developer or service providers are expected to pass on the benefit of ITC to homebuyers, which will eventually bring down the total impact of tax on property value.

Transfer of completed property is not considered as rendering services to a buyer and thus does not attract GST. According to the CBEC's recent clarification, “Sale of building is an activity or consideration which is neither a supply of goods nor a supply of services. (Para 5 of schedule III of the CGST Act, 2017).” So if you buy a completed property, it will help you save money in form of tax.