GST on hire: Govt clarifies on the brand new rule on residential properties

The authorities has clarified on the brand new GST or items and companies tax guidelines on hire, which got here into impact from 18th July. In a tweet, PIB stated that “renting of residential unit taxable solely when it’s rented to enterprise entity️.” It further clarified that “no GST when it is rented to private person for personal use; no GST even if proprietor or partner of firm rents residence for personal use.” 

According to tax consultants, till seventeenth July 2022, GST was relevant on the hire of a industrial property however from 18th July 2022, GST shall be charged if such residence is rented or leased by a GST-registered particular person/entity. As really useful on the forty seventh GST Council assembly, the tenant ought to pay 18 per cent GST on a reverse cost foundation (RCM). However, they’ll declare this worth as a deduction whereas they pay tax on gross sales in GST returns.

Mahesh Jaising, Partner, Leader – Indirect Tax at Deloitte India stated, “Renting of residential dwellings up to 17th July 2022 was exempt regardless of the status of the tenant i.e. whether the service provider or service recipient is registered or unregistered. This meant that renting of property for residential purposes was exempt for all. However, w.e.f. 18th July 2022, a tenant who is GST-registered will become liable to GST on renting for residential purposes under the reverse charge mechanism.”

Mahesh Jaising went on so as to add that there isn’t a tax that’s required to be discharge by the owner whether or not the tenant is registered or not. The solely change that has been caused is {that a} tenant who’s GST-registered will now not be capable to declare the good thing about exemption from GST on residential dwellings. Tax will should be discharged by such tenants underneath RCM.

Archit Gupta, Founder and CEO at Clear stated, “If any common salaried person has taken a residential house or flat on rent or lease, they do not have to pay GST. However, a GST-registered person/entity who carries out business or profession must incur 18 per cent GST on such rent paid to the owner. They can claim the input tax credit on the GST paid towards rent or lease on residential property.”

As per the replace, ‘Persons’ embrace people in addition to company entities. GST registration is required when any particular person carries on enterprise or career and makes an annual turnover greater than the brink restrict outlined underneath the GST legislation.

“The limit varies according to the nature of supply and state or UT where the principal place of supply is located. If the person supplies services alone, ₹20 lakh per financial year is the limit. The limit is ₹40 lakh for a supplier of only goods. However, if registration is obtained from northeastern or special category states, the limit is lowered to ₹10 lakh,” stated Archit Gupta, including, “If you might be registered as a composition taxable particular person, you can not declare the enter tax credit score on rental bills however may nonetheless need to pay GST on hire on a reverse cost foundation.”

Speaking on this GST rule change, Mahesh Jaising stated, “The change will impact corporate houses who have taken residential units on rent for their employees. GST will now be required to be paid by such registered taxpayers under reverse charge and can impact on the P&L, as the department can dispute the eligibility of credit, treating the same as used for personal consumption. This credit eligibility should be examined carefully by industry.”

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