GST on Rent @ 18% (Explaining all Practical Scenarios)

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GST has been introduced in India with effect from 1st July and it subsumes several indirect taxes like VAT, Service Tax, Excise Duty etc. All expenses on which these indirect taxes were levied earlier have been replaced by GST with effect from 1st July 2017.

In simple words, GST would now be levied in place of these indirect taxes. The rates of GST are 5%, 12%, 18% and 28%. The exact rate to be levied depends on the type of goods/services.

What is the rate of GST on Rent?

GST on Rent is taxed @ 18% of the Rent paid. However, it is important to note here that GST is only levied on Renting of Commercial Property but not levied on Renting of Residential Property.

As per Notification No. 12/2017, Rent paid on renting of residential dwelling unit for use as Residence is exempted from the levy of GST. It is important to note here that only residential dwelling unit for use as residence is exempted and not for use for office/commercial/ other purpose. Therefore, if a residential property is rented for use as office/showroom/any other purpose other than residence – GST on Rent @ 18% would be applicable.

Apart from the above mentioned exemption, there are several other exemptions from payment of GST on Rent as well which are discussed below.

What are the Exemptions from GST on Rent?

GST on Rent is exempted in the following cases:-

  1. The immovable property is a Residential Property used for Residence, or
  2. The total value of services provided and goods supplied by the landlord during the year is less than Rs. 20 lakhs during the financial year and he does not have a GST Registration, or
  3. Rent is being received by a registered charitable trust or a religious trust which owns and manages a religious place meant for the public and:-
    1. The Rent on Rooms is charged Rs. 1,000 or less per day.
    2. The Rent on Shops and other spaces for business are charged Rs. 10,000 or less per month.
    3. The Rent on Community Halls or an open area is charged Rs. 10,000 or less per day.

Computation of Rs. 20 Lakhs turnover for claiming Exemption

If the total value of services provided and goods supplied by the landlord during the financial year is less than Rs. 20 Lakhs – he is not required to obtain GST Registration No. and is exempted from collecting GST on Rent.

It is important to note that Rent received is also considered as a service and would be included in the computation of turnover. The total rent received from all the properties + Total value of services provided and goods supplied (if any from his business) should be less than Rs. 20 Lakhs.

This limit of Rs. 20 Lakhs is for all the states except the states mentioned below. For the states mentioned below – the limit is Rs. 10 Lakhs.

States for which Thresh-hold for GST Registration is Rs. 10 Lakhs

Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, Uttarakhand.

For all other states – the threshold limit is Rs. 20 Lakhs.

Computation of GST on Rent

GST on Rent would be levied as explained in the following example:-

GST on Rent

This GST would be replaced by CGST @9% and SGST @ 9% in case the landlord is registered in the same state.

In case the landlord is registered in a different state, IGST @ 18% would be levied. (Refer: Practical scenarios below)

How to Raise Invoice for GST on Rent?

In case GST has been levied on Rent, the landlord is required to prepare a proper GST Invoice in accordance with the Invoice Rules clearly mentioning the Invoice No., Date of Invoice, Rent received, Rate of GST and several other items.

There is no prescribed format by the govt for raising a GST Invoice. The govt has mandated that certain items should are compulsory to be mentioned in the invoice. The place where these items are mentioned is not mandatory. Moreover, the landlord is free to mention any other items other than the items mandated by the Govt.

Practical Scenarios

There are 3 components of GST i.e. CGST, SGST & IGST. In case of same state transactions – CGST & SGST is levied whereas in case of inter-state transactions – IGST is levied.

It is important to determine whether the Rent received is a case of same state transaction or inter-state transaction as this will directly impact whether CGST+SGST is to be levied or IGST is to be levied.

As per the GST Law – the Place of Supply in case of Immovable Property is always the Location of the Property.

However, in case of GST on Renting of Property, it is also important to determine whether the landlord is registered in the same state or is registered in a different state than the state in which the property is located.

Scenario 1: Landlord & Tenant are registered in the same state in which the Property is located.

If the landlord is registered in the same state in which the property is located – CGST @ 9% and SGST @ 9% would be levied.

For example: If Mr. Karan Batra who is registered in New Delhi gives his commercial property in Delhi on Rent , CGST @ 9% and SGST @ 9% would be levied in this case.

Scenario 2: Landlord is registered in the same state in which the Property is located but Tenant is registered in different state

If the landlord is registered in the same state in which the property is located – then this would be a case of same state transaction and therefore CGST & SGST would be levied irrespective of the location of registration of the recipient.

In such cases, the tenant would also not be able to take the credit of CGST & SGST if he is not registered in the same state in which property is located.

For eg: Mr. Rahul from Mumbai travels to Delhi for a client meeting and stays in Taj Hotel. He pays Room Rent of Rs. 20,000.

The owners of Taj Hotel are registered in Delhi and the hotel is also located in Delhi and therefore CGST and SGST would be levied in this case. However this CGST and SGST is levied in Delhi whereas Mr. Rahul is registered in Mumbai.

Mr. Rahul cannot claim the Input Tax Credit of this GST paid as CGST & SGST of a different state has been registered and not of the state in which he is registered.

In case of transactions between different states, only credit of IGST can be taken and not of CGST & SGST.

Scenario 3: Landlord is registered in a different state than the state in which the Property is located

If the landlord is registered in a different state than the state in which the property is located – then this would be a case of inter-state transaction and therefore IGST @ 18% would be levied.

For example: If Mr. Karan Batra who is registered for GST in Delhi has given a property on Rent in Gurgaon, Haryana, IGST @ 18% would be levied in this case. It is not necessary for the landlord i.e. Mr. Karan Batra to register for GST in Haryana as well.

Can the Landlord be Registered in a Different State

Yes, a landlord can be registered in a different state as well. It is not necessary for the Landlord to register in the same state in which the property is located.

Just because the landlord is having an immovable property which is on rent in a different state – this does not mean that he is supplying services from that place and is not necessary required to register for GST in that state.

He has the option to either register in the same state or register for GST from a different state.

In case the landlord is registered in a different state as compared to the location of the property – IGST would be levied. In case he is in the same state – CGST & SGST would be levied.

Other Relevant Points

  1. The tenant who is paying the GST to the landlord can claim the benefit of Input Tax Credit.
  2. The landlord would be required to file GST Returns and deposit the GST collected with the Govt. based on the GST Return filing schedule.
  3. TDS is different from GST. In certain cases, the tenant would be required to deduct TDS on Rent as well. Recommended Read: TDS on Rent

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and loves to help people with their Tax Queries.