Goods and Services Tax (GST) has created a specific structured approach for collecting taxes from various sectors. In this section, we will discuss the impact of GST on Rent and how it varies between commercial properties and residential properties.
According to the Schedule 2 of the GST, giving out an immovable Property on rent will be treated as supply of services if and when,
(i) A property is given out on lease, rent, easement or license to occupy
(ii) When the property (either commercial, industrial or residential) is leased/ rented out for business.
Above condition makes it clear that renting a property for the domestic/ residential purpose will not attract any tax. GST is applicable only on commercial properties rented out for business. Let us call it a taxable rent.
Further, there are conditions for applying GST on the properties rented for the Business purpose.
Before GST – Service Tax:
Earlier, during the time of Service tax (before GST) Service tax was paid on rent received from commercial property and the even residential property was given for a business purpose. Service Tax was at least 15% of the rent collected for commercial properties. At that time, a landlord has to pay tax if the rent from all sources is more than Rs 10 Lakh per annum. Any landlord whose rental income is within Rs 10 lakh per annum need not pay any tax. He/She is exempted from Service Tax
Renting out Residential property is exempted from GST. Renting out any other immovable property for business will be treated as Supply of Service and will attract a GST of 18%. However, the GST on Rent is applicable only if the total rental income ( from all the sources of rent) crosses Rs 20 lakh per annum. It has to be noted that during Service Tax, crossing a rental income of Rs 10 lakh attracted 15% service tax.
But, GST has increased the cap and made it Rs 20 lakh per annum. Hence, all the landlords who are getting rental income between Rs 10 lakh and Rs 20 lakh are benefitted by the implementation of GST, as they have moved out from the tax bracket.
Indirectly, GST has helped some of the landlords by increasing the cap limit and saved their tax money. If they pass on the benefit to the customer, Rents are bound to reduce a little. However, based on the market demand, there is no decrease in rents. Hence, we can conclude that the impact of GST on rents is almost neutral.
GST of 18% applied to those, who cross a rental income of Rs 20 lakh per annum, are at loss by the implementation of GST. Earlier, they used to pay 15% Service tax and now they have to pay 18% tax under GST.