Understanding GST and Rental Income in India

India's Goods and Services Tax (GST) has significant implications for rental income, particularly distinguishing between residential and commercial properties. This article explores how GST applies, most notably in the context of residential homes and commercial properties, and offers guidance based on the current tax policies and upcoming changes.

Residential Properties and GST

Under the GST regime, there is no GST application on rental income for residential homes. The provision for "Services by way of renting of residential dwelling for use as residence" ensures that rent paid for residential accommodations is exempted under the 18% GST rate. This means:

Common salaried individuals renting residential houses or flats do not have to pay GST. Only GST-registered persons who conduct business or professional activities will incur the 18% GST rate on the rent paid for residential properties.

Commercial Properties and GST

When it comes to rental income from commercial properties, the situation is different. The GST applies if:

The rental income originates from commercial properties. The landlord provides additional services along with the rental property.

It is essential to note that rental income from commercial properties exceeding Rs 20 lakh (2 million INR) attracts a 18% GST rate under the current provisions of the GST law.

Threshold Limit and GST

A significant change in the GST regime is the increase of the threshold limit for applicability of GST. The threshold limit under the service tax regime was Rs 10 lakhs (1 million INR), but this has now been raised to Rs 20 lakhs (2 million INR). This change benefits many landlords who were previously covered under the service tax regime and will now be exempt from indirect taxes. For landlords:

Prior to GST, if the total of taxable services, including rental income, exceeded Rs 10 lakhs annually, the landlord was required to obtain a service tax registration. With GST, the threshold limit is now Rs 20 lakhs, meaning many landlords who were previously registered under service tax will no longer be required to do so once GST is implemented.

Income Tax and GST

Rental incomes are chargeable under the Income Tax Act, 1961. However, the application of GST and service tax (now GST) varies:

Residential properties let out for residential purposes are exempt from service tax. Commercial building tenants will now be charged GST instead of service tax.

Key Points to Remember

The 18% GST applies to rent paid by GST-registered persons conducting business or professional activities. Rental income from residential properties is exempt from GST. Commercial properties and those with additional services provided carry a 18% GST rate if the annual income exceeds Rs 20 lakhs. The threshold limit for applicability of GST is now Rs 20 lakhs, compared to the previous Rs 10 lakhs under the service tax regime.

Conclusion

The implementation of GST has brought significant changes to tax regulations for rental income in India, particularly distinguishing between residential and commercial properties. It is crucial for property owners to familiarize themselves with these changes to ensure compliance and avoid any potential tax liabilities.

Seeking professional tax advice is recommended to navigate the complexities of GST compliance effectively. As the details of GST laws continue to evolve, staying informed can help mitigate risks and capitalize on the benefits of the new tax regime.