The Goods and Services Tax (GST) has brought significant changes to the taxation landscape in India, including how rental income from properties is treated. Whether you are a landlord, tenant, or simply curious about GST implications on house rent, this article will provide detailed insights into key aspects of this subject.
GST on Rent of Residential Property
Under GST law, renting of residential property for residential purposes is exempt from GST. This means that if you own a house or apartment and rent it out to individuals for their personal use, you are not required to charge GST on the rental income.
However, if a residential property is rented out for commercial purposes, GST is applicable. For instance, if a residential property is used as an office or rented by a company, the rental income becomes subject to GST. The applicable GST rate in such cases is 18%.
GST on Rental Income Exceeding ₹40 Lakhs
If your total rental income from all properties exceeds ₹40 lakhs in a financial year, you are required to register under GST as per the threshold limits. This threshold includes rental income from both commercial and residential properties.
Here are the key points to consider:
- If the aggregate turnover (including rental income) exceeds ₹40 lakhs in a year, GST registration becomes mandatory.
- Once registered, GST is applicable to the rental income from properties not exempt under GST rules (e.g., residential properties rented for residential use remain exempt).
- The GST rate for taxable rental income is 18%.
GST Rules for Rental Income
The GST rules for rental income depend on the type of property and its use:
- Residential Property Rented for Residential Use: Exempt from GST.
- Residential Property Rented for Commercial Use: Taxable at 18%.
- Commercial Property Rental: Always taxable at 18%.
It is essential to ensure proper invoicing and GST compliance to avoid penalties. Landlords must issue GST-compliant invoices for taxable rentals and maintain accurate records of income and expenses.
House Rent RCM Under GST
The Reverse Charge Mechanism (RCM) applies under specific circumstances in GST. For rental income, RCM is applicable when a residential property is rented by a registered person (tenant) for business purposes.
Under RCM:
- The liability to pay GST shifts from the landlord to the tenant.
- The tenant must be registered under GST.
- The tenant pays the GST directly to the government instead of the landlord.
- The GST paid under RCM can be claimed as an Input Tax Credit (ITC) by the tenant, subject to other conditions being met.
Reverse Charge on House Rent
Reverse charge on house rent specifically applies when:
- The landlord is unregistered under GST.
- The tenant is a registered business entity and uses the property for commercial purposes.
For example, if a registered company rents a residential property for housing its employees and the landlord is unregistered, the company (tenant) is liable to pay GST under RCM.
Key Takeaways
- Residential Use: Renting residential property for residential purposes is exempt from GST.
- Commercial Use: Renting residential or commercial property for business purposes attracts GST at 18%.
- Threshold for GST Registration: Rental income exceeding ₹40 lakhs in a financial year necessitates GST registration.
- RCM on Rent: Applies when a registered tenant rents from an unregistered landlord for business purposes.
By understanding these rules, landlords and tenants can ensure compliance with GST laws and avoid potential penalties. Always consult with a tax professional for personalized advice tailored to your specific circumstances.