When is 18% GST Applicable for Renting Residential Properties ?

If you are a salaried person and you have taken a flat or any house for rent then the newly launched 18% good and service tax under the Reverse Charge Mechanism (RCM) will not apply to you. From 18 July 2022, a tenant has to pay 18% of GST if he/she is registered for GST. Although the 18% GST can be claimed back under the Input Tax Credit.

 (Input Tax Credit means claiming GST paid on purchasing of goods and services for the future tax liability) 

Earlier commercial properties such as office spaces and taking space for business purposes attract GST. Residential properties are not under GST before the 47th GST council. Following the 47th GST residential properties given on lease or rent attract GST under some circumstances. 

With these changes, any property which is rented by a company/individual for employee residence, Guest house, or office space then will attract 18% GST. For Example, if a Professional or company renting/leasing an apartment for their office use then that will attract 18% GST and the GST will be paid by the tenant. The government has left few exceptions. 

For instance, if the property is used by the tenant as a residence and the landlord is not registered under GST (i.e. the total income of the landlord is not exceeding the 20 lakhs threshold in a financial year), “said Jayant Bajaj, Associate SKV Law Offices. 

To keep things simple the liability of GST will be on the tenant. The tenant has to pay the GST and the landlord has neither to collect any GST nor to make his/her registration for GST. “From the landlord’s perspective, things are fairly simple. Whether or not the tenant is registered under GST, he does have to pay GST on the renting service. Please bear in mind, there is no specific threshold over which the GST is to be paid GST is to be paid from the first rupee of the rent paid’, said Ankit Jain, Partner, Ved Jain & Associates

The annual threshold limit for GST registration is 20 lakh is you are a service provider and in the case of good supplier the annual threshold limit is 40 lakh. For Example, If a commercial entity has taken a commercial property on rent and the landlord is not registered under GST. In this case, if the company had taken the property on rent for its employee and the rent is decided to be 1 lakh per month. So now the company has to pay a total amount of 118,000 to the landlord as rent because the GST is calculated by the Reverse Charging Mechanism (RCM).