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