In June, the 47th meeting of the GST Council, chaired by Union Finance Minister Nirmala Sitharaman, authorised a number of amendments to the taxation system. The changes become effective on July 18, 2022.
The requirement that a GST-registered renter pay Goods and Services Tax at the rate of 18% when renting a residential property was one of the most important changes.
Prior to June 18, 2022, residential property was exempt from all taxes, regardless of whether the landlord or renter was registered for GST or not.
Commercial real estate is subject to the GST, and it will continue to do so even after June 18, 2022. When the landlord is a registered GST user, the GST is applicable to commercial property. When a landlord’s annual revenue exceeds Rs. 20 lakhs for services and Rs. 40 lakhs for the delivery of products, they are required to register for the GST.
Regardless of whether the tenant is registered or not, if the landlord leases out a business property and is registered for GST, the landlord will charge the renter 18% GST.
According to the new regulations starting on June 18, 2022, regardless of whether the landlord is GST-registered or not, if the renter of the residential property is GST-registered, they must pay 18% GST. The GST must be paid through the reverse charge method (RCM), which requires that the tenant pay the government directly.
For instance, if a business rents a guesthouse or a residential home for the use of its employees, the business is required to pay 18% GST. The employee is not required to pay GST if they directly rent a residential property.
When renting a residential property, tenants who are GST-registered are required to pay GST. Companies, small businesses operating in residential properties, online content producers that produce movies, etc., as well as business experts like CPAs, attorneys, architects, and business consultants may all be considered tenants registered under GST.
Situations Where Tenants Are Not Required to Pay GST on Residential Property
- When renting a residential property, tenants who are not registered for the GST are exempt from paying it.
- The individual in the salaried class is exempt from paying GST while renting a home.