GST on rent of residential property Effective from 18 July 2022: Detailed Analysis

Under GST Laws, Once thing is very clear that a registered person under GST supplying any goods or services to any person is required to charge and collect GST under section 9 of CGST Act or section 5 of IGST Act except when it is specifically exempted under GST. GST on rent of residential property was exempted till 17th July 2022 when it was for residential dwelling used as Residence (Entry no. 12 to Notification no. 12/2017 dated 28.06.2017). It is important to understand here that only residential dwelling unit for use as the residence was exempted and if the same residential building was for the use of office/commercial space/other purpose/showroom, same was taxable and GST on Rent @ 18% was applicable.

But now after the recommendation of the 47th GST Council Meeting, it has been decided to amend the above provisions to make the taxability of GST on rent of residential property in some other circumstances also.

Applicability of GST on renting of residential property up to 17th July 2022

As explained above, as per Entry no. 12 to Notification No. 12/2017, No GST on rent of residential property was chargeable when it was for use as Residence, and liability to pay tax was not arise to pay either by the supplier of service or recipient of service. However, if the residential property was for the use of office/commercial space/showroom/another purpose, same was taxable and GST on Rent @18% was applicable.

Applicability of GST on residential property effective 18th July 2022

There have been many changes in the taxability of residential property with respect to exemptions, taxability under RCM etc.

1. GST on rent of residential property under RCM

As per Notification No 05/2022- Central Tax (Rate) dated 13.7.2022, reverse charge Notification 13/2017- Central Tax (Rate) dated 13.7.2022 has been amended to include the following Entry 5AA under the Reverse charge mechanism:

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Source: Notification No 05/2022- Central Tax (Rate) dated 13.7.2022

From the above notification, it is clear that any person supplying services of renting of residential property to a GST registered person (for either residential or commercial purpose), will attract GST under Reverse Charge Mechanism (RCM). That means, in this case GST would be required to be paid by the tanent who is a GST registered person. It is irrelevant whether the supplier of rental service of such residential dwelling is registered under GST or not.

2. Exemption is withdrawn for GST on rent of the residential property when the recipient is registered under GST

The exemption has been withdrawn vide CGST(Rate) Notification no. 04/2022 dated 13.07.2022 if the recipient is registered under GST even if renting of residential property is made for use as a Residence.

Relevant extract of Notification 04/2022 dated 13th July 2022 are as follows:

Sr. No.HSN/SACDescription of servicesRateConditions
12.Heading 9963 or Heading 9972Services by way of renting of residential dwelling for use as a residence  except where the residential dwelling is rented to a registered personNilNil

Analysis of Impact of New changes on Landlord & Tenant of Residential Property

Scenario-1: Landlord is an unregistered person under GST and Tenant is Registered:

If the supplier of renting services (landlord) is unregistered person under GST provides service of renting of a residential dwelling to a GST Registered person. In this case, GST on rent of residential property is taxable and registered recipient shall pay GST @ 18% under RCM. Please note that ITC can be claimed if the same is used for business purposes.

Scenario-2: Landlord is Registered person under GST and Tenant is also Registered:

If the supplier of renting services (landlord) is a registered person under GST provides service of renting of a residential dwelling to a GST Registered person. In this case, GST on rent of residential property is taxable and the GST registered recipient shall pay GST @ 18% under RCM and may claim ITC if such property is used for business purposes.

Scenario-3: Landlord is a Registered person under GST and Tenant is an unregistered person:

If the supplier of renting services (landlord) is a registered person under GST provides services of renting of a residential property to an unregistered person. In this case, the GST-registered landlord shall not charge any GST as same shall remain exempted under GST subject to the residential property is used for residential purposes.

However, if renting of residential dwelling is for commercial purposes to a GST unregistered person, the landlord shall collect GST @ 18% from the recipient of service and shall pay GST under Forward Charge Mechanism.

Scenario-4: Landlord is an unregistered person under GST and Tenant is also unregistered:

In this case, GST would not be levied.

FAQs on GST on rent of residential property

Is residential property exempt from GST?

If the landlord and tenant both are unregistered under GST, it is exempt. Further, in case the landlord is registered it would still be exempted if it is used for residence purposes.

What is the rate of GST on renting of property?

GST rate is 18% for both commercials as well as residential property, if not specifically exempted.

Who will pay GST if landlord is an unregistered person under GST and Tenant is Registered

GST on rent of residential property would be paid by registered tenant @ 18% under RCM.

Is Input tax credit available in case of GST on residential property?

GST would be available to be claimed as ITC only if such residential property is sued for business purposes.

Please comment below, in case of any queries. We will be happy to answer all your queries.

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