In this article, we will discuss about the applicability of GST on Rental Income from renting the commercial property as well as residential property, and we will also see various examples on inter-state and intra-state transactions.
Applicability of GST on Rent
The basic definition of outward supply includes rental income in the ambit of supply. Renting of immovable property is specifically considered as a supply of services in the GST regime. As per the GST Act, the following types of rents are covered under GST:
- any lease, tenancy, easement, license to occupy Land
- any lease or letting out of the building including commercial or residential property for business or commerce (wholly or partly).
This type of renting is considered as a supply of services, and hence, GST would be attracted. Vide notification 12/2017 rent received from renting of residential dwelling unit for residential purpose is exempt from GST.
In other words, if you rent commercial property for commercial use, then GST is applicable. If you rent out your residential property for residential purpose, it is exempt from GST but, if you rent out your residential property for Business use, then GST will be attracted. Purpose of use of the property is the deciding factor.
Further, Rent received by the registered charitable trust or a religious trust exempt from GST where:
- Rent on rooms is Rs 1,000 or less per day.
- Rent on shops, business units, community halls of such charitable trust are Rs 10,000 or less per day.
- Rent on community halls or open area charged Rs. Ten thousand or less per day.
Also Read:
Registration and Payment Requirement
If the total value of services provided by the landlord during the financial year is less than Rs. 20 Lakhs (threshold limit) then he is not required to get the registration and is also exempt from collecting GST on rent. For calculation of threshold limit of Rs. 20 Lakhs rental income from all property and all other taxable supply should be considered. Let us understand this with various examples.
Example-1: Mr Arjun has three commercial properties which are given on rent throughout the year. Rental Income of Mr Arjun Per year is as below.
| Particulars | Rental Income per year (Rs.) |
|---|---|
| Property 1 | 6,00,000 |
| Property 2 | 7,00,000 |
| Property 3 | 8,00,000 |
| Total | 21,00,000 |
In the given case, Mr Arjun has to get registration under GST because his total yearly income from all the properties are exceeding Rs. Twenty lakhs even though his income from one property does not exceeds Rs. 20 lakhs
Example-2: Mr Arjun has two commercial property and also doing the business of supply of goods which are taxable under GST. Mr Arjun’s yearly total income from various sources is as under:
| Particulars | Income per year (Rs.) |
|---|---|
| Property 1 | 5,00,000 |
| Property 2 | 5,00,000 |
| Business of supply of goods | 12,00,000 |
| Total | 22,00,000 |
In the given case, Mr Arjun has to get registration under GST because his total taxable income from the supply of service, i.e. renting of property and supply of goods are exceeding Rs. 20 Lakhs
For specified states, the threshold limit is Rs. 10 Lakhs. Those specified states are Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
Further, it is important to note that for the landlord of the property it is not compulsory to get registration in the state where the immovable property is situated. He might be registered in a different state than the immovable property is located. For example, if the landlord is registered in Maharashtra and the property is located in Gujarat then for landlord it is not compulsory to get registration in Gujarat just because the property which is rented out is in Gujarat.
Also Read: GST on Cab Services
Reverse Charge Mechanism under GST
As per the GST Act, If Government or local authorities give immovable property on rent to a registered person, then GST is to be paid by the tenant under Reverse charge mechanism. If the tenant is an unregistered person, then the government will collect GST under the forward charge mechanism.
Place of Supply
As per the GST Act, Place of Supply for services related to immovable property is the location of the immovable property. So if the property is situated in Gujarat then place of supply will be in Gujarat and if the landlord is also registered in Gujarat then it is an intra- state transaction and CGST + SGST should be charged on the invoice value. But if the landlord is registered in Maharashtra then it will be an inter-state transaction and IGST should be livable because place of supply is the location of the property which is in Gujarat.
Let us understand this in detail with various examples:
| Particulars | Example-1 | Example-2 | Example-3 | Example-4 | Example-5 |
| Location of Property Rented Out | Gujarat | Gujarat | Gujarat | Gujarat | Gujarat |
| State in which Landlord is registered | Gujarat | Maharashtra | Maharashtra | Gujarat | Gujarat |
| State in which tenant is registered | Gujarat | Gujarat | Maharashtra | Maharashtra | Unregistered |
| Intra-state/Inter- State | Intra-State | Inter-State | Inter-State | Intra-State | Intra-State |
| GST Applicable | SGST + CGST | IGST | IGST | SGST + CGST | SGST + CGST |
| ITC available to the tenant | Yes | Yes | Yes | No – As ITC being CGST+SGST of different state cannot be claimed | No – As tenan is not registered |
Computation of GST on Rent
GST is applicable at the rate of 18% on rental income. If the Landlord is required to collect GST then the landlord has to charge 18% GST on Rent amount as below:
Intra-state Transaction:
| Monthly rent collected by landlord | Rs. 2, 00,000 |
| Add: CGST @ 9% | Rs. 18,000 |
| SGST @ 9% | Rs. 18,000 |
| Total Invoice amount | Rs. 2, 36,000 |
Inter-state Transaction:
| Monthly rent collected by landlord | Rs. 2, 00,000 |
| Add: IGST @ 18% | Rs. 36,000 |
| Total Invoice amount | Rs. 2, 36,000 |
Invoice for GST on Rent
If the landlord is required to levy GST on rent, then the landlord has to issue Tax Invoice in
accordance with the GST Invoice Rules. The invoice should contain Invoice Number,
Invoice date, rent charged, place of supply, Rate of GST, etc. as required by GST laws.
The Invoice must be serially numbered and clearly show the place of the immovable
property.
Note: SAC (Service Accounting Code) for rental & leasing falls under heading 9972. For rental or leasing services involving own or leased residential property fall under SAC code 997211.
Commission Paid to Broker
Commission paid to property broker by the landlord is covered under GST. The broker should get registration under GST and collect GST from the landlord. GST is applicable even if the commission is paid for the residential property.
TDS under section 194I and 194IB of Income Tax
TDS is to be deducted under section 194I and Section 194IB on the rent paid or payable. Such TDS is to be deducted on the rent part only and not on the GST part, if applicable.
GST Applicability and Input tax credit on property management services
In case of property management services, there is a middleman who works as a broker for getting new tenants for the landlord and also provide other services such as maintenance of such property. The services provided by such person is a taxable service even if provided for residential houses.
In many such cases, the person carries out maintenance of property and pay directly to the vendor and takes bill in his own name. Afterwards, take reimbursement from the owner of the property. It is to be noted that the person cannot take input tax credit even if the bill is in his name because he is taking reimbursement from the owner and thus it’s not an input service for his business.
Input Tax Credit
The owner of property who is collecting GST can take input tax credit of any GST paid by him in respect of such property. For example: The owner of property has build furniture for the purpose of giving furnished office on rent. The GST paid on such furniture is allowed as input tax credit.
Note that GST paid on construction of building is a blocked credit under Section 17(5) and therefore it’s input credit cannot be taken.
The lessee can also take the input tax credit of such GST paid.
Relevant Case Laws
Renting for agricultural purposes is exempt
Leasing of land for coffee plantation is for agricultural purposes. It falls under 9986 and is exempt from tax – Cochin Plantations Ltd. In re (2018) 70 GST 806 = 99 taxmann.com 55 (AAR – Kerala).
Renting or leasing of land by farmers for agriculture, forestry, fishing or animal husbandry exempt – It is clarified that renting or leasing of land by farmers for agriculture, forestry, fishing or animal husbandry exempt from 1-7-2017 itself – CBI&C press release No. 16/2018 dated 28-5-2018.
Renting Service supplied jointly by co-owners
A property is co-owned by two or more persons. Whether exemption limit of Rs. 20/10 lakhs is available separately to each co-owner?
In our opinion, if the building is co-owned by persons due to inheritance, then the exemption is available separately. If the building is purchased/constructed for the purpose of renting and co-ownership is merely for the avoidance of tax, then they should be treated as AOP or BOI.
In Elambrancheri Khaldoon In re (2018) (AAR – Kerala) it has been held that small business exemption under GST is available to co-owners separately if rent is collected together and divided among co-owners.
Tax payable if hospital gives part of premises on rent
GST is leviable on rent paid/payable for premises, given on lease by hospital – Tathagat Health Care Centre LLP, In re [2018]
GST paid on lease rent for land not eligible for ITC?
In GGL Hotel and Resort Company Ltd., In re[2019] (AAR-WEST BENGAL), Applicant had taken a land on lease for construction of the resort. The lease rent paid during the period before starting of operations is to be capitalised in books of account. It was held that input tax credit is not admissible for such rent paid because such rent paid is considered as a cost of construction and Section 17(5d) specifically disallowed input tax credit on the construction of immovable property.
Also Read: GST on Job Work
FAQs
Yes, GST is applicable on rent. However, GST is applicable only for renting of property for commercial use. GST is NOT applicable in case of renting of property for residential use.
The landlord has to collect GST on rent amount from the person to whom property is rented and then pay to government.
Yes, the lessee can claim input tax credit of GST paid on rent subject to the fact that such ITC is otherwise allowable to the person. For example: A person giving taxi services and paying GST at rate of 5% is not allowed to take any ITC other than ITC from same business.
You are required to pay GST only when your turnover or gross receipts is more than Rs. 20/10 lakhs. Turnover includes all type of sales like sales of goods, all services, commission etc. So if a person has 25 lakh of sales in his shop and gives other shop on rent for Rs. 5,000 per month, he is required to charge GST on Rs. 5,000.
