Newsdetail

New rule of paying 18 percent GST on house rent explained

By Rishabh Chamoli | 2022-09-22

According to the Goods and Service Tax (GST) rules, only commercial properties given on lease attract GST. However, under the new rule that came into practice from July 18, a tenant registered under the GST (including individuals and corporate entities) is required to pay tax at 18 percent. Will it impact the residential properties given on rent too?

After the 47th meeting of the GST Council, the new rule implies on those people or companies that are registered under Goods and Services Tax (GST) to pay taxes on both commercial and residential properties taken on rent. Earlier, the GST was applicable only on commercial properties. However, the council decided to implement GST at 18 percent effective from July 18, 2022 on the rent paid for using a residential property for commercial use.

What does the new rule on GST entail?
This is only applicable to GST registered people carrying out a business or a profession from a residential property. They will be liable to pay the tax under the Reverse Charge Mechanism (RCM), and then claim the GST paid under Input Tax Credit (ITC) as a deduction.
Before this amendment, only commercial properties attracted GST when leased out. There was no implication of GST on rent or lease of residential properties for professional purposes by individuals or corporate houses.
Who needs to register for GST?
It is mandatory to get the GST registration done if the business reaches an annual turnover of more than the threshold limit, which varies as per the nature and place of supply.
While the threshold limit for a registered person supplying only services is Rs 20 lakh in a financial year, it is Rs 40 lakh for a supplier of goods. However, if the registered company is located in any of the northeastern states or special category states, the threshold limit is Rs 10 lakh in a financial year.

Who will be impacted by the new GST rule?
The update, implemented after the 47th meeting of the GST Council, will affect organisations and professionals who have taken homes on rent or lease other than for personal use. For instance, the rent paid by companies towards the housing needs of their employees or properties leased by individuals to be used as guest houses will now attract GST.