Does Renting Out a Residential Property Attract GST?
A Comprehensive Guide for Landlords
#GST #Residential #Rent
As per the GST Act, renting out an immovable property is classified as a service provision. However, only specific types of rent are subject to GST, such as leasing, renting, easement or licensing for commercial, industrial or residential purposes. This particular type of rental activity is regarded as a service provision and therefore subject to taxation. Conversely, renting out a residential property for residential purposes is exempt from GST. Nonetheless, any other form of leasing or renting out of an immovable property for business purposes would incur a GST rate of 18% as it is considered a service provision.
GST Exemption for Personal Renting of Residential Properties for Use as a Residence
If you i.e. Landlord is renting a residential property in your personal capacity for use as tenant's own residence, you are in luck! The 48th GST Council meeting has clarified that you are exempt from paying GST on such renting activities.
The exemption applies even if you are a proprietor of a proprietorship firm and have rented out the residential property in your personal capacity (and not on behalf of the firm) for use as your own residence.
It's important to note that this exemption only applies to residential properties used as a residence and rented in a personal capacity.
GST will still apply to any other type of renting or leasing of immovable property, including commercial or industrial properties, or if the residential property is rented out for any other purpose than personal residence use.
Who is required to register when the property is rented out to businesses?
Under the GST Act, renting out a property to a business is considered a supply of service and is therefore taxable. If the rental income, including any other exempted income, exceeds Rs. 20 lakhs per annum, the landlord is required to register under GST and pay taxes.
If a property is rented out for business use, then as per the GST
regulations, GST-registered tenants will be liable to pay GST at 18%,
irrespective of whether the landlord is registered under GST or not.
This implies that if a tenant has registered under GST and is renting a
property for business purposes, they will have to pay GST at the rate of
18% on the rent amount.
Shivani resides in Mumbai and has a property in Pune that is rented out to XYZ Pvt. Ltd. for use as an office space. For the Pune property, she is receiving a rental income of Rs. 25,000 per month, or Rs. 3,00,000 per annum alone. As per the GST regulations, the place of supply shall be the location of the immovable property.
Thus, even though Shivani resides in Mumbai, the place of supply will always be where the property is located, which is Pune in this example. As the total income is below Rs. 20 lakh per annum, Shivani is exempted from GST applicability.
If a GST taxable service is provided by you then is it necessary to consider interest income from PPF/FD/ Savings for GST threshhold of 20 lakhs?
When determining the threshold for GST registration, it is important to consider all sources of income. While interest income is exempt under GST law, it must be taken into account when calculating the aggregate turnover if the service provider is also providing taxable services under GST. This means that the value of both taxable and exempted services provided by the service provider through deposits, loans, or advances for which interest income is earned must be considered to arrive at the aggregate turnover.
Let's say Mr. Navneet earns income from rent amounting to Rs. 15 lakhs, but his interest income from PPF, fixed deposits, loans, and advances is Rs. 8 lakhs. In this case, his total turnover is Rs. 23 lakhs, out of which Rs. 8 lakhs fall under the exempt supply of services. The threshold limit for aggregate turnover for services is Rs. 20 lakhs.
Although the income from rent is the only taxable service provided by Mr. Navneet, he must consider his exempt interest income while calculating his aggregate turnover for GST registration. As his total turnover exceeds Rs. 20 lakhs, including his exempt interest income, Mr. Navneet is liable to register under the GST Act. Hence, he must aggregate the value of exempted interest income earned from fixed deposits, loans, and advances along with the value of taxable service provided i.e., "Renting of immovable property" for calculating the threshold limit of Rs. 20 lakhs for GST registration.
CASE LAW
Case Title: Shree Sawai Manoharlal Rathi v. GST AAR Gujarat Case Number: Advance Ruling No. GUJ/GAAR/R/2020/10 Date of Judgment/Order: May 19, 2020
Questions presented to the authority:
Whether interest income received from PPF should be included while calculating the threshold limit of Rs. 20 lakh for GST registration?
Whether interest income received on personal loans and advances given to family/friends should be included while calculating the threshold limit of Rs. 20 lakh for GST registration?
Whether interest income received on a saving bank account should be included while calculating the threshold limit of Rs. 20 lakh for GST registration?
The GST AAR Gujarat, in the case of Re. Shree Sawai Manoharlal Rathi, answered all the questions in the affirmative. The applicant, an individual, had an annual turnover of more than Rs. 20 lakhs, which was mainly interest income and therefore exempt from GST. However, the applicant also provided services of "Renting of immovable property" and extended deposits, loans, and advances where interest income was earned. The taxable turnover from the rent income was only Rs. 9.84 lakhs, but the applicant was required to consider the value of both taxable and exempted supplies to arrive at the "Aggregate Turnover" for the purpose of obtaining registration under the GST Act. Therefore, the applicant was required to aggregate the value of exempted interest income earned from various sources along with the value of the taxable supply of "Renting of immovable property" to calculate the threshold limit of Rs. 20 lakhs for GST registration.
