Examine the exemptions, rules, and factors that affect both landlords and tenants when renting out residential and commercial premises in relation to the Goods and Services Tax. Learn how to effectively negotiate the rental market and maintain compliance.

The Goods and Services Tax (GST) on renting residential property in India has undergone significant changes between 2017 and 2022. Initially exempt, it became taxable from April 1, 2019, affecting landlords and tenants. However, the period after 2022 is subject to potential shifts in policy and regulations, which could further alter the landscape of residential renting transactions. These changes impact how landlords and tenants manage their rental agreements and taxation responsibilities. Understanding the evolving nature of GST on residential renting is crucial for navigating the complexities of property leasing in India during this transformative period.

From July 1, 2017, until July 17, 2022, the Goods and Services Tax (GST) applicability on renting of residential property underwent several changes and clarifications. Here’s an overview:

Effective from July 18, 2022, the GST applicability on renting residential property has been revised based on the 47th GST council recommendation. This amendment is reflected in two notifications issued subsequently.

Notification no. 04/2022- Central Tax (Rate) dated 13th July 2022 – which amended the exemption notification no. 12/2017- Central Tax (Rate) dated 28th June 2017; and

2. Notification no. 05/2022- Central Tax (Rate) dated 13th July 2022 – which introduced reverse charge under renting of residential property by amending notification no. 13/2017- Central Tax (Rate) dated 28th June 2017.

Following the amendment introduced through Notification no. 04/2022- Central Tax (Rate) dated 13th July 2022, the exemption entry pertaining to GST applicability on renting residential property reads as follows:

Accordingly GST exemption will take effect on July 18, 2022, provided the following criteria are satisfied:

Condition 1 – The registered person is engaged in providing service relating to renting ofresidential dwelling; and
Condition 2 – The rented residential dwelling is used by the tenant for the purpose ofresidence; and
Condition 3 – The tenant is not registered under GST.

Now we can conclude as per the above dicussions, if the tenant is GST registered, GST will apply to renting residential property starting July 18, 2022.

Notification no. 05/2022- Central Tax (Rate) dated 13July 2022 covers reverse charge applicability in case of GST on renting of a residential dwelling. Relevant Sr. No. 5AA of thesaid notification is reproduced hereunder –

A comparative examination of GST applicability/exemption for residential property rentals over two periods is shown in the table below: July 1 through July 17, 2022, and July 18, 2022 and beyond.

GST in relation to commercial property rentals:

Renting out commercial real estate does not require the application of GST. Thus, under the forward charge on the rental of commercial property, GST is applicable at the rate of 18%. Below is a table that shows the GST scenario for renting business property:

FAQs concerning the Goods and Services Tax (GST) on rental income from residential and commercial properties

Below are some significant answers to frequently asked questions on the applicability of GST to rent on residential and commercial property:

Q.1 Who has to pay GST on rent for commercial property?
Yes. Landlords or registered service providers are required to pay GST at the rate of 18% on commercial property rent. There is no reverse charge mechanism applicable in case of GST on rent on commercial property

Q.2: Is rent on commercial property subject to RCM?
Yes. No, there are no reverse charges applicable on rent on commercial property.

Q.3 Is residential rent GST free?
Ans. Residential rent was totally GST free till 17th July 2022. However,from 18th July 2022, the residential rent is not GST free if the tenant is registered under GST.

Q.4 Is GST applicable on residential dwelling?
Ans. GST was exempt on residential dwelling till 17th July 2022. However, GST @18% is applicable on residential dwelling, from 18th
July 2022, if the tenant of the residential dwellingis registered under GST.

Q.5What is the meaning of residential dwelling?

The Central Goods and Services Tax Act, 2017 does not define residential dwelling. To put it simply, “living in a certain place, permanently or for a considerable length of time” is the definition of residential habitation.

Q.7: Is residential rent subject to GST?
Yes. If the tenant is registered for GST, then residential rent will be subject to GST as of July 18, 2022. Under the reversecharge method, the tenant is required to pay GST at a rate of 18% in this scenario.

Q.8 How does GST apply to residential rent?
Ans. As we discussed abovve also till 17th July 2022, GST was exempt in case of residential rent if the specified conditions are satisfied. However, from 18th July 2022, GST applicability/exemption to residential rent has underwent a major change.

Q.9 Is commercial rent GST exempt?
Ans. No, there is no exemption available to commercial rent under GST.

Conclusion: 

In conclusion, it takes awareness and knowledge to navigate the shifting terrain of GST on rental property. For both landlords and tenants, compliance is essential with regard to exemptions, taxable periods, and recent revisions. Contact Laudable Legal Solutions right now for professional advice on GST-related issues and legal support.