On June 28 and 29, 2022, the 47th GST Council meeting occurred. Following the previous GST Council meeting, there were multiple modifications to the Goods and Services Tax (GST). The partial elimination of the GST exemption for services provided in connection with the rental of residential property is one of these significant changes.
It’s crucial to recall that services involving the rental of residential properties for use as a residence were exempt from GST as of July 1, 2017. As of July 18, 2022, certain elements of the exemption will be withdrawn.
Residential and commercial rentals are subject to the GST on residential property rentals. Therefore, even if a residential property is rented out for commercial purposes, the rent remains subject to GST.
|Particulars||New notifications||Old notifications which are amended vide the new notifications|
|Notice covering exemption available under GST||Notification no. 04/2022- Central Tax (Rate) dated 13th July 2022 [amendment effective from 18th July 2022]||Notification no. 12/2017- Central Tax (Rate) dated 28th June 2017|
|Notification covering the applicability of the reverse charge mechanism||Notification no. 05/2022- Central Tax (Rate) dated 13th July 2022 [amendment effective from 18th July 2022]||Notification no. 13/2017- Central Tax (Rate) dated 28th June 2017|
The said amendment relating to the applicability of GST on the rental of residential property is briefly covered in the present article.
GST liability for renting a residential property till July 17, 2022
Since the beginning of the Goods and Services Tax (GST), or as of July 1, 2017, any person who is engaged in renting out residential properties specifically for habitation was eligible for a GST exemption. Notably, the exemption listed at SI No. 12 of Notification No. 12/2017- Central Tax (Rate) from June 28, 2017, is tabulated below:
|Heading||Description of service||Rate||Condition|
|Heading 9963/ Heading 99721||Facilities through the rental of a home for use as a residence||NIL||NIL|
The aforementioned makes it abundantly clear that renting out a residential property to anyone who intends to live there is exempt from all regulations. In other words, when renting a residential property to someone for a business purpose, GST is due.
GST validity for residential property rentals as effective from July 18, 2022
According to notification number 04/2022- Central Tax dated July 13, 2022, SI. No. 12 of notification number 12/2017- Central Tax (Rate) dated June 28, 2017, changed. The amendment states that the phrase “except where the residential dwelling is rented to the registered person” will be added after the words “as a residence.”
Therefore, after the publication of notification no. 04/2022- Central Tax (Rate) dated July 13, 2022, SI. No. as of July 18, 2022, will read as follows:
|Heading 9963/ Heading 99721||If the property is not rented by a registered person, renting it to be used as a home is prohibited||Nil||Nil|
With effect from July 18, 2022, GST will apply to residential rentals as follows:
|Particulars||GST Position post 18th July 2022|
|Renting a residential property for residential use to the person registered under GST||Taxable as of July 18, 2022|
(Free from 1 July 2017 to 17 July 2022 and Taxable from 18th July 2022)
|Renting a residential property for a personal reason to an individual who isn’t registered with the GST||Exempted from 1st July 2017|
|Rental of a residential property for a business purpose to a person who is registered for GST||Taxable from 1st July 2017|
|Renting a home for a business for an individual not registered under GST||Taxable from 1st July 2017|
The corresponding modification to the reverse charge service mechanism for renting residential dwellings-
The fundamental notification, Notification No. 13/2017-Central Tax (Rate), dated June 28, 2017, covers the list of services to which the Reverse Charge Mechanism is applicable. SI. NO. 5AA was added to Notification No. 13/2017- Central Tax (Rate), dated June 28, 2017, by Notification No. 05/2022 – Central Tax (Rate), dated June 13, 2022. The said SI.No. 5AA is tabulated hereunder-
|SI.No.||Description of Service||Service provider||Service receiver|
|5AA||Renting the residential dwelling to the registered person as a service||Any person||Any registered person|
As a result, the registered person (also known as the service recipient) who receives services by renting a residential property is required to pay GST under the Reverse Charge Mechanism. In nut-shell, even if the service provider of the renting of a residential dwelling is registered under the GST, the registered service receiver will be liable to discharge the GST under Reverse Charge Mechanism.
The conclusion that GST applies to the rental of residential property –
The following table offers an overview of how GST will be used for residential property rentals starting July 18, 2022.
|Particular||GST Applicability||GST payable by the service provider||GST payable by the service receiver|
|Services of renting of residential dwelling for residential purposes to the person registered under GST||GST-taxable as of July 18, 2022,||No||Yes|
|Services related to renting a home for private purposes to a person not registered under GST||Exempted||NA||NA|