If you are owning a residential house or flat or may be an office or a shop and considering to rent/lease it out, you should know about the GST obligations involved, as renting of immovable property qualifies as supply of service under GST law.
1.0 Renting of residential dwelling for use as residence is exempt
Under GST law, exemption has been provided in respect of services by way of renting of residential dwelling for use as residence. Accordingly, in case you have rented out your residential house or flat to anyone for residential use, it will be an exempted supply and GST will not be applicable thereon.
However, in case you have rented your residential house / flat for commercial use the exemption will not be operative and GST will be applicable on the rental amount.
1.1 Renting of residential dwelling to commercial entities exempt?
Various rulings are available in regard to applicability of GST
on renting of residential dwelling to commercial entities.
West Bengal Authority of Advance Ruling (AAR) in the case of Borbheta Estate Pvt Ltd has adjudged that renting a residential property to a company for residential use by its employees is an exempt supply under GST.
Andhra Pradesh AAR in case of M/s Lakshmi Tulasi Quality Fuels, has ruled that renting of dwelling to a commercial entity for use as hostel will not be exempt from GST as lessee is engaged in commercial activity of renting of rooms in the dwelling and providing boarding and hospitality services to inmates.
Similarly any residential dwelling taken by a Company for use as Guest House may also be regarded as used for commercial purposes and would be subjected to GST.
1.2 Renting of office or shop or building other than residential house / flat is taxable
The renting of office or shop or building other than residential house / flat is not exempt and would be subject to GST. However GST, will still not be applicable in case your aggregate turnover does not exceed Rs 20 lakhs as there will be no need to obtain GST Registration.
2.0 GST registration: When required
Under GST law a person who is engaged in supply of services is required to obtain registration where his aggregate turnover in a financial year exceeds Rs 20 lakhs. The term aggregate turnover includes taxable as well as exempt supplies but excludes non-supplies like salary from employer, sale of land, completed building etc.
Let us understand the above by following example:
Sana has earned various incomes during a financial year. The treatment of each income from taxability and aggregate turnover perspective is tabulated below:
||Taxable / exempt / non supply
||Treatment for aggregate turnover
||Will not be included, being non-supply.
|Rental of residential flat
||Will be included.
|Rental of office space
||Will be included.
|Interest on FDR with Bank
||Will be included.
The aggregate turnover worked out as above is Rs 17 lakh which being less than Rs 20 lakh, Sana will not be required to obtain GST registration and pay GST on the rental of office space, which otherwise is a taxable supply.
However once the aggregate turnover breaches the limit of Rs 20 lakh, registration will be required to be taken by Sana within 30 days of such breach and GST will have to be paid on rental income earned thereafter.
2.1 Threshold limit of Rs 20 lakhs available to each co-owner
Kerela AAR in the case of Elambrancheri Khaldoon, has held that a threshold exemption limit of Rs 20 lakhs under GST is available to co-owners separately if rent is collected together and divided among co-owners.
To avoid any litigation, it is suggested that the rent payable to each Co-owner is mentioned in the rent agreement and the tenant should pay the share of rental amount to each of the co-owner separately.
2.2 GST registration: Where required
As per GST law registration is to be obtained in the State / UT from where supply is being made. As a landlord you are not required to obtain GST registration in each State where the immovable property you have let out is located. Rather you can obtain a single GST registration in the State where you reside or have place of business.
3.0 Tax to paid
As per GST law, there are two kind of supplies, the first being Intra-State supply and the second being Inter-State supply.
Intra-State supplies are those supplies where the location of the supplier (place of business/residence where GST registration is taken by the landlord) and place of supply (location of immovable property being let out) are in same State / UT. Supplies, where the location of supplier and place of supply are in different States/UT, are termed as Inter-State supply.
The requirement of registration and tax applicable on renting of immovable property is illustrated in the following table:
|Location of Immovable Property Rented Out (Place of Supply)
|Place of business or residence of the landlord (Location of Supplier)
|Registration to be obtained in which State
|Nature of Supply
||CGST @9% + SGST @ 9%
||IGST @ 18%
4.0 Invoice for GST on Rent
In case you are required to pay GST on rent, you will have to issue a ‘Tax Invoice’ based on periodicity of rent payment which normally is every month. In case you are GST registered and providing exempted supply of renting of residential dwelling, you need to issue a ‘bill of supply’ instead of ‘tax invoice’.
5.0 When the GST is payable- Time of Supply
In case of renting of immovable property services, GST is payable on due or receipt (whichever is earlier) of rental income. Accordingly GST will also be payable where advance rent is received from the tenant for future months. However GST is not payable on ‘adjustable deposit’ or ‘refundable deposit’.
6.0 Value of Supply
GST is to be paid by you as landlord on the value of supply of renting services. As per GST law the value of supply will generally be the transaction value i.e. the rental amount as mentioned in the lease / rent agreement.
It is suggested that rental amount mentioned in rent agreement should be exclusive of taxes / plus taxes, so that GST can be charged on such amount by you from tenant. In case the rent is inclusive of GST, the landlord need to segregate the rental and GST component while issuing tax invoice and making payment of GST.
6.1 Can property taxes and statutory levies deducted from value of supply:
As per GST Law, taxes (other than GST) are included in value, if separately charged by supplier. Accordingly you can’t deduct the property taxes and other statutory levies for the purpose of arriving at the value of rental income on which GST is to be paid.
6.2 Notional rent on security deposit to be included in value?:
Karnataka Appellate Authority for Advance Ruling (AAAR) in the case of M/s Midcon Polymers Pvt Ltd has held that notional interest on the security deposit shall be taken into consideration, for the purposes of arriving at total income from rental, only if it influences the amount of monthly rent.
6.3 Reimbursement of electricity expenses to be included in value?
Gujarat AAR in the case of Gujarat Narmada Valley Fertilizers & Chemicals Ltd has adjudicated that that a landlord does not have to pay GST on electricity or incidental charges recovered from tenants, in addition to rent as per lease agreement for renting of immovable property.
7.0 Filing of returns
The discussion about GST implications on renting of immovable property cannot end without touching the GST returns aspect.
As a landlord you need to file GSTR-1 return wherein invoice wise details of your rental and other incomes is to be uploaded on monthly / quarterly basis.
The payment of tax on self-assessment basis and filing of GSTR-3B return is to be made on monthly basis. However in case your turnover is less than Rs 5 crore you can opt for QRMP Scheme and file GSTR-3B returns on quarterly basis and pay tax every month.
In case of delay in payment of GST interest @ 18 percent p.a. would be required to be paid for the delayed period.
Further Annual Return is to be filed by December 31 in following year in Form GSTR-9.
The author, Mohammad Salim, is a Chartered Accountant, specializing in the domain of Taxation and is presently working as a General Manager with Power Finance Corporation Ltd. The views expressed are personal.