Since the introduction of Service Tax Law you had to pay tax only on renting of commercial immovable property and thereafter even upon the introduction of GST regime in 2017 renting of residential property was not covered and was exempt. However in July 2022 Government has made certain amendments and you are now required to pay GST on renting of residential property. In this article we have discussed the amendment brought about by the Government which has levied GST on residential property.
As per the notification introduced by the GST Council residential dwelling is taxable under the reverse charge mechanism. This means that if you are a tenant then the liability to pay tax is on you as you has taken the residential dwelling on rent and not on the landlord who has provided the property to the tenant on rental basis even if the landlord is registered under Goods and Services Tax. In such cases the tenant who has taken a residential accommodation on rent needs to pay @ 18% GST on rent with effect from 18th July 2022.
It may be noted here that if you are the landlord and are registered under GST it will not extinguish the liability of the tenant. Tenants have to compulsorily pay the GST under reverse charge mechanism.
Some scenarios maybe seen here to get a clarity on the amendment.
i) Supposing you are a salaried person who has taken a residential property on rent from unregistered landlord. In this case you will not be liable to pay GST since it is applicable on only those persons who are registered under GST irrespective of the fact whether the landlord is registered under GST laws or not.
ii) If both landlord and tenant are registered under GST and the residential dwelling is taken on rent even then GST @ 18% will be deposited by the tenant and not the landlord however GST paid by the tenant can be claimed as an input tax credit.
iii) If you own a company which is registered under GST and has taken a residential accommodation on rent for its employees even then the GST will have to be paid by your company as it is a tenant.
iv) If both the tenants and the landlord are unregistered then there would be no GST and no liability.
Earlier there was no clarity regarding applicability of GST where the residential property is taken on rent for personal use, however Delhi High Court has recently given a verdict according to which if proprietor of a proprietorship firm in his personal capacity has taken on rent a residential dwelling and such renting is not on account of his business but it for his personal use then the exemption would continue to be available.
Hence in this article we have covered the amendment with regard to renting of residential accommodation which is to be taken care of by you if you are a tenant and GST liability needs to be discharged if you are a registered under GST. Are you discharging your GST liability on renting of residential dwelling ?
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The author is a practicing Chartered Accountant, Senior Partner in Kohli Chitkara & Co. LLP and can be contacted at [email protected]. Any comments or queries are welcome.
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The information provided in this article is for general informational purposes only. All efforts have been made to provide accurate information in this document, however it should not be perceived as a professional or legal advice. Reader should consult a professional before making any decision based upon this document. Under no circumstance author or the publisher shall have any liability to you for any loss or damage of any kind incurred as a result of the use of this information.
