GST on rent: Applicability, Provisions, Calculation and Payment

When one rents a residential property for accommodation purposes, it is let off from goods and services tax. Any other category of lease or rent of an immovable asset for performing business shall require GST. It would need about 18% of GST. This is because it shall be considered a service supply. In this piece, you will be exploring the ins and outs of Rental GST and the circumstances when you will need to register for it or apply for it.

What Exactly Does Rental GST Include?

The implementation of GST in the year 2017 invited major shift to the rental earning taxation across several nations around the world. Renting an asset is currently counted as a service supply that is fully taxable. This concept of Rent GST is considered under the regime of GST. Both the tenants and the landlords are liable to the obligations of the taxation based on the unique scenarios.

When it comes to Rental GST, the landlords renting properties need to pay goods and services tax based on the rental revenue they earn. This taxation is evaluated as a rental percentage that has been received. One needs to keep in mind that it has to be paid off by the taxation system on a daily basis. The rate of GST on rental revenue might vary based on the nation and the particular situation of the rental contract.

On the contrary, the tenants who want to rent a housing asset also need to make a rent GST payment to the homeowners. The amount of the tax paid by tenants is generally included within the overall amount. It is further remitted to the authority of tax by the owner on the tenant’s behalf. 

Nevertheless, it is imperative to keep in mind that only some Rental GST contracts are subjected to the goods and services taxation system. The GST applicability based on the rental revenue and the paid rent entirely depends on multiple factors. Some of the examples include the cause of rent, the type of asset and the property location. More elements might be formed based on the specific scenario in which the rent has been acquired.

Who All Needs Registration When A Property Has Been Rented To A Venture?

As per the Act of GST, if a person is renting out an asset to a business body due to a commercial cause, the landlord must sign up for GST. This applies in case their yearly income exceeds the usual threshold of twenty lakhs. One needs to abide by the rule even if the landlord is not an organization, an individual, or any other category of entity. The landlord needs to gather the GST for house rent and make a GST payment based on their rental earning, targeting the rate of application that is 18%.

It is imperative that if the homeowner is already signed up for the rental GST, they do not need to further go for a registration individually for a rental earning. In such scenarios, the rental revenue needs to be involved in the entire turnover of the homeowner for GST purposes.

How to Evaluate the Rental GST On Properties That Are Rented Out?

The GST for house rent is generally evaluated based on the amount of rent asked from the tenants. The homeowner needs to pay the rent GST based on the rental earnings that the tenant has received. The GST rate that is applicable on renting immovable assets is around 18%.

In order to evaluate the tax on the rented assets, one can use the following formula.

Goods and services tax + (Rent * 18%) divided by 100

For instance, in case the monthly rent of the commercial asset is about 50,000, the rental GST that is payable shall be evaluated based on a similar formula. 

Rental GST Vs GST Based On Rental Revenue

It is imperative to keep in mind that the GST on rent and the rental earning has two different aspects. The tax based on the rental earnings is eligible when the homeowner attains a yearly rent of about twenty lakhs and becomes liable for paying the goods and services tax based on the rental GST revenue. 

On the other hand, the tax based on the rent is a liability of taxation solely on the tenant. However, this is only applicable if they are GST-registered bodies and utilize a residential asset for business operations. To break it down, the GST on rental earnings is paid off by the homeowner, while the GST on rent is paid off by the tenant.

This also indicates that the situation where a property for residential purposes is set free for business. In this case, a rental GST-registered individual and the homeowner earn a yearly rent of twenty lakhs. At this time, the tenant, along with the house owner, shall have to pay about 18% of GST while seeking their liability mutually at 36%. 

Tax Based On Rental Revenue in the Pre-Era Of Rent GST

Before rental GST was implemented, the homeowner needed to attain a registration of service tax if the entire taxable service, along with the rental earnings, surpassed ten lakhs. If the total amount of income does not cross the line of 10 lakhs every year, the homeowner will not need to pay any service tax.

As per the previous regime of taxation, only the category of commercial assets was set to receive service taxes. This was applicable even if the residential asset had been utilized for commercial operations. This tax has been charged at a 15% rate of Rent GST in the case of commercial assets. Nevertheless, the rental earnings from residential assets did not consider any sort of service tax.

This indicates that homeowners who possessed commercial assets and rented them to others needed to sign up for service tax. They needed to pay the tax based on the rental earnings they received. On the contrary, homeowners who possessed commercial assets were not required to register when it came to service taxes. 

Nevertheless, with the arrival of GST, the regime of taxation for rental earnings underwent a major shift. Under the regime, renting residential and commercial assets can be treated as a taxable service supply. GST is entitled in case of an individual’s rental earnings that the homeowner has attained and also the ones paid off by the tenants. 

With the elimination of rental exemption of dwelling units, the tenants who are GST-registered need to pay GST at an 18% rate. On the contrary, the house owners need to pay taxes on rental earnings on both commercial and residential assets. 

What Does It Mean By Tax Deduction Provision On GST For House Rent?

Tax holders can demand a deduction in the interest they receive on house loans. They can claim the deduction due to the cause of repairing, acquiring, constructing and renovating a property that has been rented. The highest deduction amount of the interest paid on the GST house rent can be demanded as a form of deduction. 

In addition to that, payers of tax are eligible for deductions when municipal taxes have been already paid during the fiscal year on the rental asset. This rule falls under section 24 of the Income Tax Act. The deduction amount is almost equal to the real amount of funds paid by the municipal taxation during the fiscal year. 

Indian taxpayers earning an income from rented assets can demand a deduction of taxes on their tax returns. The deduction amount is based on multiple aspects. The factors include the amount of the GST on rental assets and the property type.

Other than that, it is incredibly imperative that taxpayers maintain appropriate records of all expenses that are incurred and relevant to the rented asset. It is a crucial step to be performed to claim one’s deductions for GST house rent. The records may involve bills for maintenance and repairs, GST rental receipts, municipal tax receipts, etc. 

Wrapping Up

GST eligibility on the rent is evaluated based on the property usage. The law of GST in India considers renting residential and commercial property as a service supply. This is evident in case one is using the property space for commercial causes. As a result, the rental GST is imposed on the particular service.

Frequently Asked Questions on Rental GST

1. Who is Responsible for Paying the Rent GST Amount on Commercial Assets?

In the case of commercial properties, the GST on rent is usually eligible for payment by a tenant who is utilizing the house for business operations. This is mainly because, under the regime of GST, renting commercial assets is considered to be a service supply. Therefore, it is constantly subjected to GST.

2. Does Rental GST Tax Apply On Residential Living?

GST is not considered for residential dwellings in all cases. It is free of GST when they are rented out for housing. Nevertheless, if a property of residential living is rented to someone for commercial causes, the GST is set at around 18%. 

3. What Exactly Is Meant By Residential Living?

Residential dwelling indicates the immovable asset that is utilized or intended to be utilized as a residential space for a family or any individual. It might include flats, builder floors or an apartment. In simple words, it can consist of anything meant for residential purposes. The terminology ‘residential dwelling’ is often utilized in the context of rental GST for referring to housing assets that are rented to people for personal purposes. Hence, they are free of GST charges.

4. Is The Commercial Category Of Rent GST Liable Or Exempt?

When it comes to rental GST, the commercial category of rent is not free of GST tax. According to the Act of GST, leasing or renting a commercial asset includes warehouses, shops and offices. One can count them as a service supply and are henceforth taxable under GST. The rate of GST applicable on commercial renting is 18%. Nevertheless, small taxpayers with a yearly income of twenty lakhs are free from registering for the GST tax under rental earnings.

5. Which States Have A Threshold For GST Registration Of 10 Lakhs?

The states with a rental GST threshold of 10 lakhs are Sikkim, Nagaland, Manipur, Jammu and Kashmir, Assam, Arunachal, Uttarakhand, Himachal and Tripura.

6. Is The Input Tax Credit Permissible On Rental Home Repairs?

Yes, the input taxation credit is applicable on the house repairs when the property is rented and does not produce further revenue.

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