18% GST on rent explained: Who all will pay tax after Govt’s new rule on residential properties

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The 47th GST Council meeting on Friday has cleared a host of changes proposed earlier in the taxation regime. Under one of the proposals now, the tenants would have to pay 18 per cent GST on home rent. Till now, the GST was applicable on those residential properties which were used for commercial purposes, like offices and shops. But from now on, the tax has to be paid on the rent of the property for any use.

However, all tenants are not bound to pay the tax, which will come into effect from July 18. As per the new rules, GST-registered tenants will have to pay tax under the new rules. In a tweet, PIB said that “renting of residential unit taxable only when it is rented to a business entity.”

Another tweet said: “No GST when it is rented to a private person for personal use; no GST even if proprietor or partner of firm rents residence for personal use”.

GST on rent explained

As mentioned above, not everyone who has rented property needs to pay the tax. As per the new government’s rule, GST will be charged on residential properties, if it is rented or leased by a GST-registered person/entity.

That would exempt most of the salaried class as they are not registered on the GST network. The Narendra Modi government has set the yearly threshold limit for GST registration to 20 lakh for service providers and Rs 40 lakh for goods suppliers.

Under the new rule, the tax will be paid by the GST-registered tenant, not the owner. This has been termed as the reverse charge mechanism where the onus to pay the tax lies with the recipient of the good or a service, not the supplier of the service.

Who will pay and who won’t pay Salaried people paying rent for residential properties won’t pay any GST under the rule. However, if a GST-registered person takes a house or flat on rent or lease and carries out business would have to pay 18 per cent GST on the rent paid to the owner.

Also, if both the landlord and the tenant are unregistered under GST, then the tax rules won’t apply to the tenant. Further, if the landlord is GST registered, but the tenant is not listed, the transaction won’t have the GST clause in it.

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