GST: Understanding how the rules around tax on rent will apply to tenants


Under the new goods and services tax (GST) rules, which came into effect on Monday, a tax of 18 per cent is now applicable to residential property rent. The tax will be charged according to the reverse charge mechanism (RCM), where the tenant will be liable to pay the GST.

However, it must be clarified that the salaried individuals, who have taken home on rent or lease, will not be required to pay any such tax. The new rule only applies if the person/ company has completed the GST registration.

What is GST registration?

According to the rules, if a person/ company earns more than the set threshold limit per annum, they are liable to be registered under GST.

For individual service providers, like business consultants, the threshold is Rs 20 lakh per annum. For a business that makes money by selling products, the threshold is Rs 40 lakh per annum. This limit is set at Rs 20 lakh in the northeastern states.

Salaried individuals are not required to be registered under GST, saving them from the new 18 per cent tax.

What are the new GST rules for rent?

If a service provider (with an aggregate income of more than Rs 20 lakh per annum) or a business (with aggregate income by selling products of more than Rs 40 lakh per annum) rents a house, they will be liable to pay the 18 per cent tax. However, for this, they must be registered under GST.

Businesses with a turnover of less than Rs 40 lakh per annum and salaried individuals are not required to pay the tax. Also, according to a Times of India report, if a company rents a home for its employee, there is no requirement to pay any GST.

Moreover, if both the tenant and the owner are not registered, there is no legal obligation to pay any GST on the rent.

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