47th GST council meeting was held on 28th June 2022 and 29th June 2022. Lots of amendments are carried out under Goods and Services Tax (GST) post the said GST Council Meeting. One such important amendment is partial withdrawal of exemption on services by way of GST on rent of residential property.
It is important to note that the services by way of renting of residential dwelling for use as a residence were exempted from GST since 1st July 2017. However, with effect from 18th July 2022, some part of the exemption is withdrawn.
The GST on rent of residential property applies to both residential and commercial properties rented. Therefore, the rental income is subject to GST even if a residential property is rented for business purposes.
The said amendment is carried out vide the following two notifications –
Notification | Particulars |
|---|---|
Notification no. 04/2022- Central Tax (Rate) dated 13th July 2022 | Service exemption notification no. 12/2017- Central Tax (Rate) dated 28th June 2017 is amended. |
Notification no. 05/2022- Central Tax (Rate) dated 13th July 2022 | Reverse charge notification no. 13/2017- Central Tax (Rate) dated 28th June 2017 is amended. |
The present article briefly explains the exemption of GST on rent of residential property till 17th July 2022; GST exemption on renting of residential dwelling post 18th July 2022 and GST applicability on renting of residential dwelling as effective from 18th July 2022.
GST on rent of residential property : Exemption in GST
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With the insertion of GST, various services are exempted vide service exemption notification no. 12/2017- Central Tax (Rate) dated 28th June 2017. Exemption with regard to GST on renting of residential property is covered under sr. no. 12 of the said notification. The same is tabulated hereunder –
Sr. No. | Description of service | Rate | Condition |
|---|---|---|---|
12 | Services by way of renting of residential dwelling for use as a residence | NIL | NIL |
The simple interpretation of the above table is that GST exemption is available if all the following conditions are satisfied –
Condition 1 – Service provider is engaged in providing service of renting of residential dwelling; and
Condition 2 – The residential dwelling under GST is used for the purpose of residence by the service receiver.
When both the above conditions are satisfied, GST is exempted. Notably, the said exemption is available with effect from 1st July 2017.
Who has to pay GST on rent?
Vide notification no. 04/2022- Central Tax (Rate) dated 13th July 2022, sr. no. 12 of service exemption notification no. 12/2017- Central Tax (Rate) dated 28th June 2017 is amended. Accordingly, the amended sr. no. 12 is tabulated hereunder –
Sr. No. | Description of service | Rate | Condition |
|---|---|---|---|
12 | Services by way of renting of residential dwelling for use as a residence except where the residential dwelling is rented to a registered person. | NIL | NIL |
Accordingly, with effect from 18th July 2022, GST exemption is available only if all the following conditions are satisfied –
Condition 1 – Service provider is engaged in providing service or renting of residential dwelling; and
Condition 2 – The residential dwelling is used for the purpose of residence by the service receiver; and
Condition 3 – The residential dwelling is rented to an unregistered person.
Notably, first two conditions are same as earlier. However, addition of the condition 3 has changed the scenario. Now, the exemption is available only if the service receiver is a person not registered under GST.It is important to note that your GST liability will remain unchanged as long as you have rented out your property for business purposes, regardless of its use. GST on rental income is not applicable if you rent your residential property for residential purposes to an individual not registered for GST.
The following table briefly summarizes the position under GST on rent of residential property for use as residence post issuance of notification no. 04/2022- Central Tax (Rate) dated 13th July 2022 –
Service provider | Service receiver | Taxable/ exempt | Effective date |
|---|---|---|---|
Registered | Registered | Exempt | From 1st July 2017 till 17th July 2022 |
Registered | Unregistered | Exempt | From 1st July 2017 till date [Such services provided to unregistered person are exempt even after 18th July 2022] |
Registered | Registered | Taxable | From 18th July 2022 |
Unregistered | Registered | Taxable | From 18th July 2022 |
Unregistered | Unregistered | Not Applicable | Not Applicable |
In nut-shell, the service provider (whether registered or not) is providing services by way of renting of residential dwelling for use as residence to service receiver (who is registered). Then, in such GST exemption is withdrawn with effect from 18th July 2022.
Is GST applicable on rent under RCM?
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As seen above, in the case of renting of residential property, GST gets applicable when the services are provided to the registered person. Notably, the entire tax liability is shifted to the receiver of the service under RCM in GST.
Notification no. 05/2022- Central Tax (Rate) dated 13th July 2022 has amended basic reverse charge notification no. 13/2017- Central Tax (Rate) dated 28th June 2017. As per the notification, sr. no. 5AA is inserted which is tabulated hereunder –
Sr. No. | Description of service | Rate | Condition |
|---|---|---|---|
5AA | Services by way of renting of a residential dwelling to a registered person. | Any person | Any registered person |
GST on rent of residential property : Exemption & Applicability
First of all, let us summarize the amendments carried out vide the two notifications and their effect thereon –
Amendment notification | Corresponding amendment |
|---|---|
Notification no. 04/2022- Central Tax (Rate) dated 13th July 2022 | As per the amendment, services by way of renting of a residential dwelling provided to a registered person gets taxable. |
Notification no. 05/2022- Central Tax (Rate) dated 13th July 2022 | As per the amendment, when services by way of renting of residential dwelling are provided to a registered person, GST is payable by the service receiver under reverse charge. |
Now, let us summarize the exemption and applicability of GST on renting of residential dwelling as effective from 18th July 2022 –
Particulars | Service provider | Service receiver | Taxable/ exempt |
|---|---|---|---|
Service by way of renting of residential dwelling for use as a residence | Registered | Registered | Taxable |
Service by way of renting of residential dwelling for use as a residence | Unregistered | Registered | Taxable |
Service by way of renting of residential dwelling for use as a residence | Registered | Unregistered | Exempted |
Service by way of renting of residential dwelling for use other than residence | Registered | Registered/ Unregistered | Taxable |
If you rent a home for personal use, you are not subject to GST. However, if your tenant is a GST-registered individual, he may be required to pay 18% GST.
The requirement to pay GST on rent arises under the GST law when your company that provides business generates an annual rental income of Rs 20 lakhs or more. Previously, this threshold was set at Rs 10 lakhs. If you own a business, the limit is Rs 40 lakh per year.
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