Mumbai: Relax, If You’re The One salaried person and took one residential flat The recently introduced norms for levy of Goods and Services Tax (GST) under Reverse Charge Mechanism (RCM) on rent/lease paid will not be applicable.
Till July 17, if the residential property was let out to ‘any person’, the GST on rent/lease charges was not applicable. after 47th GST Council To recommend and issue a notification on July 13, residential property on lease or let out attracts GST under certain circumstances.
The new rules state that from July 18, when an ‘unregistered person’ (for example, a salaried individual or a small businessman) rents out his flat to a GST ‘registered person’ (for example, a company), Then GST will be applicable. Further, under the reverse charge mechanism, it is the tenant who will have to bear the GST (current rate is 18%) and compliance obligations. Under the tax laws the term ‘person’ not only denotes an individual but is broad and includes all legal entities including corporates.
Salaried individuals do not require GST registration. It is also important to note that not all businessmen, professionals or business entities are required to register. The annual threshold limit for registration is Rs 20 lakh for service providers (eg, a business consultant) and Rs 40 lakh for a supplier of goods (the registration limit is lower in the northeastern states). However, in many cases, people below the threshold also obtain GST registration as it enables their customers/customers to claim input tax credit across the supply chain.
As social media is brimming with worrying questions, let us examine three different scenarios:
Scenario 1
Here, a business consultant registered under GST has taken a flat on rent (from an unregistered person) for himself and his family. Sunil I’m sorryThe founder of a CA firm explains, “I believe the reverse charge mechanism will not be triggered if the rent paid by this business consultant is not claimed as an expense in his income tax return.”
Several worrying posts have surfaced on social media as work from home has blurred the lines. Gabhawala says, “If a professional or gig worker is registered under GST and provides services as a sole proprietor, it can help in clearing any future disputes if he/she wants to transfer the residential property in his/her name. But avoids renting.”
Also, it must be remembered that if the tenant is not bound to register under GST, the reverse charge mechanism will not be applicable.
Scenario 2
A corporate entity has taken a residential flat on rent for its principal employee or director. The landlord is a GST-unregistered person. In this case, GST based on reverse charge mechanism will have to be paid by the corporate entity, which is the tenant. Gabhawala says that if the employee has instead received the flat on rent, even if he is fully compensated by the employer, there will be no GST effect on the rent paid.
Lastly, if both the flat owner and the tenant are unregistered parties, the new norms will not be applicable.