GST on Residential Rentals

on


Renting of Residential Dwellings

Ca Saurav Jha
Sunil Arora & Associates
Chartered Accountants

The government in its endeavour to enhance tax revenues has been looking at various new avenues to increase the tax collection. The footprint of GST in this regard is also being expanded. One such new service which has come under GST with effect from 18/07/2022 is the services with respect to the rentals from residential properties. The rentals from commercial properties has already been under GST for the last many years but prior to the notification no 05/2022 – CT (Rate) dated 13th day of July-2022, the rent from residential premises was not liable to GST.

In accordance with the aforesaid notification the rentals of residential premises would also become liable for a levy of GST in case the recipient of services that means the tenant is a registered person under GST.

The provisions are not applicable in case the recipient of services that means the tenant is not a registered person on the contrary the liability for GST would get covered in case the tenant happens to be a person registered under the provisions of the GST act. The applicable rate of GST for the said services is 18% and the same are to be collected according to the RCM implying thereby that the tenant would be under an obligation to calculate and pay GST on the residential rentals paid by him.

The scheme of taxation of residential units does not affect the landowner or the landlord of the property as he is not under any obligation to charge and deposit the GST whether he is registered or unregistered under the GST laws. That means the scheme of taxation as provided in the notification does not create any additional compliance liability on the landlord of the property and the entire compliance has to be done by the tenant.

An unregistered person who takes premises on rent for his own personal residence would also not be covered by the said notification and would not be affected by the provisions as of now.
To keep things simple, the liability to deposit GST has fallen on the tenant and the landlord is neither required to obtain any registration under GST nor make any payment of GST on such renting.
From the landlord's perspective, things are fairly simple, whether or not the tenant is registered under GST, he does not have to pay GST on this renting service. 

Issues in the aforesaid leviability of GST on the renting of residential premises.

  1. The provision is applicable only in case the tenant is a registered person under GST and it is immaterial whether the landlord is registered or unregistered under the GST laws.
  2. No minimum amount have been prescribed, as a result the provision becomes applicable even with the small payment of rent.
  3. A person registered under the GST as a proprietor of the business will get covered with respect to the rent paid for his residential property as well, on the other hand the benefits of ITC on the same will not be available to him under section 17(5).
  4. The controversy with respect to applicability of GST on rent for personal purposes paid by a person registered under the GST laws has been addressed by the Hon. Delhi High Court in the case of  Seema Gupta Vs. Union of India, the court directed department to levy and collect GST only in those cases where the residential accommodation is taken on rent by the registered person in the course or furtherance of its business and department has agreed to exclude such transactions from the levy.
Location: Delhi, India

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