GST applicability on renting services of residential dwelling
Services by way of renting of residential dwelling for use as residence is exempt.
As per Notification No 05/2022- Central Tax (Rate) dated 13.7.2022, amendment has been made in Notification 13/2017- Central Tax (Rate) dated 13.7.2022 by including the following Entry 5AA under Reverse charge mechanism.
Link: https://gstcouncil.gov.in/sites/default/files/All-rate-notification/05_2022-ctr-eng.pdf
A taxpayer earning more than the exempted threshold will have to register under GST and pay taxes. So, if you have given your property to a business, then it is taxable. If you are earning income from business, including rent and any other exempted income of more than Rs 20 lakh per annum, you will have to register yourself under GST. The threshold limit for applicability of GST for those providing only services is Rs.20 lakh.
Therefore, services by way of renting of residential dwelling to a GST registered person for either residential or commercial purpose, shall attract GST and is to be paid under Reverse Charge Mechanism (RCM) in the hands of the GST Registered person who is the recipient of such services. It is irrelevant whether the supplier of rental service of such residential dwelling is registered under GST or not.
The following flowchart provides clarity in applicability of GST on services of renting of residential dwelling w.e.f 18.07.2022:
- GST unregistered person provides service of renting of residential dwelling for residential purposes to a GST Registered Here, the GST registered recipient shall pay GST @ 18% under RCM and may claim ITC on the same.
- GST registered person provides service of renting of residential dwelling for residential purposes to a GST Registered Here, the GST registered recipient shall pay GST @ 18% under RCM and may claim ITC on the same.
- GST unregistered person provides service of renting of residential dwelling for commercial purposes to a GST Registered. Here, the GST registered recipient shall pay GST @ 18% under RCM and may claim ITC on the same.
- GST registered person provides service of renting of residential dwelling for commercial purposes to a GST Registered Here, the GST registered recipient shall pay GST @ 18% under RCM and may claim ITC on the same.
- GST unregistered person provides service of renting of residential dwelling for residential purpose/Commercial purpose to a GST unregistered Here, no GST shall be applicable on such services.
- GST registered person provides service of renting of residential dwelling for residential purposes to a GST unregistered Here, no GST shall be applicable on such services. This continues to remain exempted.
- GST registered person provides service of renting of residential dwelling for commercial purposes to a GST unregistered Here, the supplier of such service shall collect GST @ 18% from the recipient of service and shall pay GST under Forward Charge Mechanism.
Therefore, kindly note in case such residential dwelling is provided on rent for residential purpose to an unregistered person, then such supply of service is still exempt under GST by virtue of Entry 12 of Notification 12/2017- Central Tax Rate dated 28.6.2017.
The owner of the property (which is given on rent) has to collect the GST from the person paying rent. This GST will be on the rent charged. The payer of rent has to deduct income tax at source at 10% if the rent for the property exceeds Rs.2.40 lakh per year from the AY 20-21 onwards. The TDS is applicable both to residential and commercial properties. There will be no GST on TDS.
To decide if CGST and SGST is charged or IGST applies. Following are some of the cases:
- Scenario 1: One case has the taxpayer located in a state different from the state in which the rented property in situated.
The place of supply shall be the place of property. Accordingly, it is interstate supply and IGST shall be charged.
- Scenario 2: Both the landlord and tenant are registered in the same State in which the property is situated.
If the landlord is registered under GST in the same state in which the property is situated, then both CGST and SGST at 9% each would be charged.
- Scenario 3: Landlord is registered under GST in the same state where the property is located but the tenant is registered in another state
If the landlord has taken GST registration in the same state in which the property is situated, then it is a case of intra state transaction. So, both CGST and SGST would be charged irrespective of the location of GST registration of the tenant.
In such cases, the tenant cannot take the input tax credit of CGST and SGST if he is not registered in the same state where the property is situated.