Tag Archives: GST on residential property

GST on Renting of Residential Property

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The 47th GST Council meeting recommended that GST be made applicable in cases where the residential property has been rented out to a registered person under the GST starting on July 18, 2022, there has been a lot of discussion about the applicability of GST on renting residential property. Let us first clarify the status of the GST Law about the GST on renting residential property on or before July 17, 2022. 

Refer to Notification No. 12/2017 from June 28, 2017. The GST Act exempted several services, including those provided by renting a residential property for habitation. Thus, regardless of the person’s status (registered or unregistered), GST did not apply to rent a residential property. 

Let us also consider what has changed as a result of the 47th GST Council meeting’s recommendation, effective as of July 18, 2022: Following Central Tax (Rate) Notification No. 04/2022 dated July 2022, CIBIC has revoked the exemption granted to the registered person. 

By RCM, CBIC has announced the following via Central Tax (Rate) Notification No. 05/2022 dated 13/07/2022: 

Category of Supply Services Supplier of Service Recipient of Service 
Rental of a residential property to a registered person as a form of service Every Person Any Registered Individual

The PIB has now made it clear that a residential unit is only taxable for rental purposes when it goes to a business entity:

  • Rent is only taxed when a business entity leases a residence. 
  • GST is not applied when a private individual rents it for personal use. 
  • No GST, even if the business’s owner or partner rents the home for personal use. 

Let us now assess the various scenarios to determine the effect of the GST’s applicability on renting residential property starting on July 18th, 2022: 

  • Registered under GST: If the tenant and the landlord are listed under GST, the tenant will be liable for paying GST due to the reverse charge mechanism. The tenant is thus eligible to submit an ITC claim. 
  • Renting property from a landlord not registered under GST: In this case, liability arises for the tenant under the reverse charge mechanism. 
  • When an unregistered tenant leases property from a legal landlord with the government, the tenant is not liable for paying the tax because the landlord stands with the law. 12/2017 Notification, dated 29 June 2017. 
  • Unregistered Landlord and Tenant: No GST liability exists because both parties are still subject to the GST. 12/2017 Notification, dated 28 June 2017. 

There might also be some other situations: 

  • Renting a residential property for employees is done by Company/LLP/Firm/AOP/BOI: In this scenario, GST will be paid via RCM, and ITC can be reclaimed. 
  • Rental of a home by a registered composition dealer: In this scenario, GST will be paid under RCM, but under the rules that apply to composition dealers, GST paid under RCM cannot be claimed as ITC. 
  • An individual registered for GST as a proprietorship business decides to rent a residential property for himself. In this situation, GST must be paid under RCM, and since it is a blocked credit under the terms of the GST Act, it cannot be claimed as an ITC. However, according to PIB’s clarification on Twitter, no GST is applicable. 

GST on Rental Income from Residential Property in India

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GST applicability on renting properties in India has been a source of concern due to continuous changes in the law since the implementation of GST. The rules for renting residential property under GST changed on July 18, 2022, a decision made by the GST Council at its 47th meeting. The CBIC has issued a new notification to clarify the scope of GST on rental income from residential property rentals. Let us look at the GST provisions on this topic. 

We will immediately clarify that renting an immovable property is considered a supply of service and is subject to GST at 18 percent. The CBIC recently issued Notification No. 15/2022- Central Tax (Rate), which goes into effect on January 1, 2023. To learn more about the notification in question, we must first examine the provisions on this subject in India since the implementation of GST.  

GST applies to residential properties until July 17, 2022. 

The entry at Sr.No. twelve of Notification No. 12/2017 – Central Tax (Rate) stated that the GST rate for “Services by way of renting of residential dwellings for use as a residence” shall be “Nil.” Accordingly, from July 1, 2022, GST was not in effect (whether registered or unregistered under GST). However, the legal position under GST changed on July 18, 2022. Please note that renting commercial property is always under the ambit of GST. 

GST applies to residential properties after July 18, 2022.

  • In its 47th meeting, the GST Council recommended that the government impose GST on a person who has given property to a registered person to rent residential property. 
  • As a result, the CBIC issued Notification No. 4/2022- Central Tax (Rate) on July 13, 2022, withdrawing the earlier allowed exemption from GST for those renting residential dwellings. This notification was made effective from 18th July 2022. 
  • The net effect of the above amendment is that beginning July 18, 2022, any person who provides services by renting residential property for use as residence to a registered person will be subject to the GST at the rate of 18%.
  • It is important to note that GST will continue to be exempt in cases where a residential property is left to an unregistered person after July 17, 2022. 

The obvious next question is, “Who will pay tax to the government for renting residential property to a registered person?” The reply can be found in Notification No. 5/2022 – Central Tax, dated July 13, 2022. 

The previous Notification, dated June 28, 2017, added a new entry 5AA to Notification No. 13/2017-Central Tax (Rate), which specifies services subject to GST under reverse charge. 

According to Entry No. 5AA, anyone who provides services to a registered person by renting residential property is subject to GST 18% under the reverse charge mechanism. 

In a nutshell, beginning July 18, 2022, if a landlord rents residential dwellings to a registered person (tenant), such tenant will be required to pay an 18% tax to the government. It should be noted that even if the landlord is registered for GST, the registered tenant is responsible for paying GST under RCM. This table will assist you in summarizing:

Residential Dwelling Rental Services

Landlord TenantGST applicabilityITC availability 
Unregistered Unregistered No GSTNA 
RegisteredUnregisteredNo GSTNA
Unregistered RegisteredGST payable by a tenant under RCMIf the property is rented for business purposes, ITC can be claimed.
RegisteredRegisteredGST payable by a tenant under RCM ITC can be claimed if the property is rented for business purposes.