Frequently Asked Questions on GST on renting of Residential Property

The 47th GST Council meeting was held on 28th & 29th June, 2022 in Chandigarh. After much discussion, a number of recommendations were made by the council. Residential housing was one of the GST Council’s topics. 

We must comprehend what a residential dwelling is. The GST Act does not, however, define a residential home. We’ll make an effort to comprehend residential home using everyday words. It refers to any type of residential accommodation, but excludes hotels, motels, inns, guest houses, campgrounds, lodges, houseboats, and similar establishments designed for short-term stays. 

Before the 47th GST Council Meeting, there was no such GST on Residential Dwelling. On July 18, 2022, the parliament implemented new GST laws governing the rental of residential property through Reverse Charge Mechanism approach. In this case it makes no difference whether the landlord is GST registered or not, if the tenant is registered under GST they are obligated to pay the tax. The renter would pay GST directly to the government rather than the landlord. 

These changes were affecting – 

  • Businesses were now compelled to pay GST if they rented out residential properties to their employees for personal use. 
  • Online content creators were also impacted; if they were registered for GST and rented a residential residence to film movies in, they were required to pay GST. 
  • Business professionals who are registered for GST and work in residential properties, such as accountants, architects, and attorneys, must also pay GST. 

Following are few Frequently Asked Questions on Renting of Residential Dwelling used for business and personal purpose:- 

1. What is the applicability of GST on Renting of Residential Property?

Ans- Earlier the renting of residential property was specifically exempted vide notification no 12/2017 dated 28.06.2017 which means that there was no applicability of GST if a residential property is rented. However, post 18th July,2022 renting of residential property is removed from the exempt notification and is GST is charged @18% under Reverse Charge Mechanism. 

2. Who would be liable to pay GST under the Reverse Charge Mechanism? 

Ans- In this situation tenant would be liable to pay GST directly to the GST department. For example, if the Rental Value is Rs.100000/- he will pay Rs.100000 to the Landlord and GST of Rs.18000 would be paid to GST department directly by him. GST shall be applicable only if the tenant is a registered GST person. 

3. When is GST registration mandatory? Under the GST law, registered persons include individuals and corporate entities. A person or company has to register under the GST, if they earn more than the set threshold limit per annum. For an individual service provider, the threshold is Rs 20 lakh per annum while it is Rs 40 lakh for businesses across the country, barring the northeastern states (where the limit is set at Rs 20 lakh). 

4. Is GST applicable on renting of residential property if it is used for personal purpose? 

Ans- As per the GST council meeting dated 17.12.2022 it was decided that if a residential property is rented to GST registered person and it is being used for personal purpose then tenant shall not be liable pay GST. However, GST shall become applicable if the same is used for business purpose. 

5. Is there any applicability of GST on renting of Commercial Property? 

Ans – An individual who is a taxpayer and earns more than the exempted amount is required to register under the GST regime and file their taxes. As a result, if you have rented your own property to a business, the rent is taxable under the GST for commercial property. When the rental revenue from commercial leasing exceeds ₹20 lakhs, GST will be applicable. 

6. What precaution should Freelancers, Self Employed Individuals should look for in case they have taken a residential property on rent? 

Ans- With most of Freelancers, Self Employed Individuals are registered under GST and working from home which is a rented property so they may be liable to pay GST if they show rental expenses as a business expense and show them in their books of accounts. However, if they are paying GST, they will be eligible to claim the benefit under Input tax credit.