New Delhi: If you are a salaried employee, and you have taken a flat on rent, the recently introduced 18% Goods and Services Tax under reserve charge mechanism will not be applicable to you. From July 18 a tenant must pay GST for rent at 18% a residential Property if it is registered under GST. However, the GST paid by the tenant can be claimed by way of input tax credit.
An input tax credit means that the GST paid on the purchase of goods and services can be claimed against future financial obligation,
While leasing commercial properties such as offices or retail spaces earlier attracted GST, leasing of residential properties by companies or individuals did not attract any tax. after 47th GST Council Recommendations, residential property leased or let out attracts GST in certain circumstances.
“With this change, any residential property being used by a company/individual for the purposes of employee accommodation, guest house or office use is also subject to this. 18% GST, For example, a professional or a company that rents an apartment for its office is liable to pay GST on rent. GST will be paid by the tenant. However, the government has made some exceptions. For example, if the property is being used as a residence by the tenant or if landlord Jayant Bajaj, Associate, SKV Law Office, said, is not registered under GST (ie, the total income of the landlord does not exceed the limit of Rs 20 lakh in a financial year).
To keep things simple, the responsibility of depositing GST has fallen on the tenant. The landlord is neither required to obtain any registration under GST nor pay any GST on such rental service.
“From the landlord’s point of view, things are quite simple. Whether the tenant is registered under GST or not, he does not have to pay GST on this rental service. Please keep in mind, there is no basic limit on which GST has to be paid. Ankit Jain, Partner, Ved Jain & Associates said that the tenant will have to pay GST on the first rupee of rent.
The annual limit for registration is Rs 20 lakh for service providers (eg, a business consultant) and Rs 40 lakh for a supplier of goods.
For example, if a corporate entity has taken a residential flat on rent for its employee, and here the landlord is also a GST-unregistered person. In such a scenario, GST will have to be paid by the corporate entity, which is the tenant. This means that apartments of senior executives hired by companies will now cost more as it attracts 18 per cent Goods and Services Tax (GST).
For example, if a landlord rents an apartment to a company for his executive at Rs 1 lakh per month, then GST of Rs 18,000 will be levied monthly. Here the lessee has to bear the cost and not the landlord.
“For private corporates, I believe the impact of this change will be quite limited. Corporate leasing for residential premises is not a preferred method these days. Such leasing is usually done by senior management or expatriates coming to India. Even in cases where GST has to be paid, corporates will have input tax credit available, limiting the impact to the bottom line of the organization, said Ankit Jain, partner, Ved Jain & Associates. Will do
But if both the flat owner and the tenant are unregistered parties, then the new GST norms will not be applicable.
“Now when a person who is registered as a Proprietorship Company under GST, takes a residential accommodation for the purpose of residence on rent for himself/his family, it will be treated as an item of personal expenditure. , not a proprietorship business expense is a matter of concern.GST will be paid under RCM but
GST paid under reverse charge cannot be claimed as it is blocked as per section 17(1). It is advisable for individuals not to rent residential property in the name of business (proprietorship concern) to avoid GST liability,” said CA Ankita Khaitan.
And finally, if an unregistered person under GST has given residential house property to an unregistered person under GST on monthly basis for residential purpose, the tenant is not liable to pay GST.
Will it affect the residential market?
“Recently decision by the GST Council to levy 18% GST on residential properties let out to persons registered under GST (compulsory registration for anyone who supplies service of more than Rs 20 lakh and above Rs 40 lakh). supplies more goods). Will have a significant impact on the rental real estate market in India. The decision could hinder the expansion of rental real estate in India by increasing the tax burden on businesses that sell residential properties for their employees. While the change hurts businesses and GST-registered individuals, it has no impact on those whose rental transactions are considered a registered GST member. It comes down to the required limit for this,” said Vivek Rathi, Director – Research at Knight Frank India.