GST on Rental Income

The GST, like other sectors of the economy, has impacted the real estate sector and its aspects like sale, purchase, construction, rent, lease, etc. Further, several provisions were laid down for regulating GST on the rental income, such as place of supply, taxable services under GST, exception limits for GST in case of service etc.

The GST value is nothing but the number of rents received from an individual's commercial properties. The commercial rents received must be more than Rs. 20 lacs a year. The commercial rents less than Rs. 20 lacs a year shall not be based on GST.

Impact of GST

When you rent out a residential property, it is exempted from GST if it is rented for residential purpose. Any other type of renting out of immovable properties for business would bring GST @ 18%, as it would be used as a supply of service.

Post GST era, the limit for applicability of GST has been enlarged to Rs. 20 lacs from Rs. 10 lacs that was in the situation before GST. It makes many landlords who were earlier covered under Service Tax regime to be moderated upto another Rs. 10 lacs earned.

Situation before GST

Before GST, the landlords had to obtain a Service Tax registration if his total taxable service exceeds Rs. 10 lacs per year. As long as rental income does not beat Rs 10 lacs per year, the landlord would not be captivated by service tax.

Under the erstwhile tax regime, commercial property alone that were let-out would attract Service Tax. It appeals that even if residential property is used for commercial purpose. The Service Tax was imposed @ 15% of rent for the commercial property.

Renting out property attracts GST

According to GST Act, leasing out of an immovable property would be managed as a supply of service. GST, however, will apply only to a certain type of rent such as:

• When a property is given out lease, easement, rent, or licensed to occupy.
• When any property is leased out, including industrial, commercial, or residential property for business (either partly or wholly), these types of renting are considered supply of service that would attract tax.

Calculation of GST on rental income earned from the commercial property

• GST is calculated @ 18% rate on taxable income from commercial properties rents (including supply of service).
• Rent for shop and other business space is Rs. 10,000 or less per month.
• Rent for community hall or an open area which is Rs. 10,000 or less per day.
• Properties listed under name of any religious trust and is managed by them, such spaces are exempted from GST. However, GST is applicable only if such renting area cost more than Rs. 1000 per day.

Provision of tax deduction on income tax for the rented property

The property (given on rent) has to gather GST from person paying rent; this GST will be based on rent imposed. The payers of rent has to deduct income tax at source at 10% ,if rent for the property exceeds Rs. 2.40 lacs per year. The TDS applies both to residential & commercial property. There will be no GST on TDS. The GST charged on the rent imposed for immovable properties by government or local authority to registered person will be under reverse charge operation. However, when property is rented to an unregistered person, Government would themselves deduct GST.

In conclusion, the implementation of GST has had a significant impact on the real estate sector, particularly regarding rental income. Residential properties rented for residential purposes are exempt from GST, while renting out immovable properties for business purposes attracts an 18% tax. The threshold for GST applicability has increased to Rs. 20 lakhs, providing relief to landlords who previously fell under the Service Tax regime. GST is calculated at a rate of 18% on taxable income from commercial property rents, with specific exemptions for properties managed by religious trusts. Additionally, landlords must deduct TDS at 10% if the annual rent exceeds Rs. 2.40 lakhs, with no GST applied to TDS. The implementation of GST has brought about changes in the taxation landscape for rental income in the real estate sector.

Unlock the potential of your real estate investments with our expert guidance on GST implications. Understand the impact of GST on rental income, including taxable services, exemption limits, and tax deductions. Contact us now at info@manishanilgupta.com to ensure compliance and maximize your returns.

Disclaimer: The information given above is to provide general guidance to the readers. This information should not be sought as a substitute for legal opinion