This is an important update as the government recently implemented changes to residential rental property taxes. The dynamics of renting residential property have undergone major changes starting 18 July 2022. At the 47th GST Council Meeting, the decision was made to modify the taxation system for residential rental property in India. Let's find out the latest information about India's 18% GST residential rental property.
GST applicable to residential rental property
The GST was not applicable to residential rental properties before the 17th of July 2022. This means that residential rental property was exempted from GST.
It is important that notification from CBIC clearly excludes GST, even if the residential property has been rented to anyone regardless of whether they have GST Registration.
GST applies to residential rental properties starting 18th July 2022
According to the CGST(Rate), Notification no. 04/2022 dated 13.07.2022. 05/2022, 13.07.2022, GST exemption for residential rental property is withdrawn.
The reverse charging mechanism will make it possible to tax tenants. Tenants will now be responsible for GST at 18%.
Important Note: Residents who do not have GST registration will not be subject to GST.
Effect on Residential Property Landlords (If the tenant is GST registered)
- If the supplier (landlord/lessor), is registered for GST it will indicate that they are outbound supplies subject the reverse charge mechanism. The renter, or leased, is responsible to pay GST. There is no additional GST tax. Section 17(2) states, "The outbound supply is subjected to reverse charge mechanism taxation." Therefore, it is not a problem with taking advantage the input credit.
- If the vendor (landlord/lessor), doesn't have a registered GST number. The recipient (tenant/lessee), is responsible for GST compliance and there is no GST burden.
Impact of GST on Residential Rental Property - Different types of taxpayers who have GST Registration
GST for normal taxpayers
When a company, LLP or firm, AOP/BOI, etc., uses it, it will be considered a business expense. Rents a residential property to house staff. Reverse charge mechanism (RCM) will pay GST. Taxpayers can claim Input Tax Credit via GST Return Filing.
For Composition Taxpayers
A GST-registered composition dealer can rent residential properties for habitational purposes. This will be considered an item of business expense. While GST will be paid via RCM as per section 10, subsection 4 states that a composition dealer cannot claim an input tax credit.
For Proprietorship Firms
When a person who is registered under GST rents a residential property to himself or his family members, it will be considered a personal expense. Reverse charge will pay GST. This means that taxpayers cannot claim Input Tax Credit because it is prohibited by section 17(1).
GST applies to Residential Rental Property for Commercial Purposes
A registered person renting a residential property to use for business purposes will be treated as if it were a commercial unit. If the landlord isn't registered, GST can't be assessed or paid against the landlord. The recipient can claim an ITC if the landlord is registered. GST will be imposed as a forward-charge basis.
Important Note: GST applicable to residential rentals in India
- ITC cannot be granted to taxpayers who use it for personal purposes, even though they are a proprietorship company. If the owner rents it out to its employees, it will be considered an expansion of the business and could qualify for the RCM tax credit.
- There are many factors that will affect the Input Tax Credit. A registered taxpayer might not be eligible for the credit for reverse charges taxes, depending on how the property is used and the type of taxpayer.
How to File GSTR 1, 2, and 3 Returns?Goods and Services Tax return filing has to be done every month/quarter by a registered taxpayer.
This is a record of Outward and Inward supply done during the month/quarter, and tax paid/payable by the Supplier.
Besides this, the taxpayer also needs to file Annual Returns.Every taxable Supplier needs to upload the outward supply details in the form of GSTR-1 for all the supplies by the 10th date of succeeding month.The inward supplies are made available on 11th day of the month in the auto-generated gst return filing onlineA blueprint of GSTR-2A of Outward Supply will be provided temporarily by GSTN based on the invoice details reported.The purchaser can accept/reject/modify such a brief blueprint of GSTR-2A (Purchaser can download his statement from the portal and update or change it offline).
The purchaser will also be able to add extra purchases (if he has received such supplies) in invoice of GSTR-2A, which is not uploaded by seller, up to 15th day of the month (i.e., within five days).
The seller can accept or reject the corrections made by the purchaser, and GSTR 1 will be revised according to the modifications agreed by the seller.Both parties will pay the amount drafted in GSTR-3 return and will debit the ITC ledger and cash ledger and mention the debit entry No.
in the GSTR-3 return and would submit the same by 20th of succeeding month.Late filing of GST Return:Â GST is applicable to all business owners, small or big and even those with zero returns.
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