The issue of a new announcement asking business entities to pay GST while renting out a house property is a hot topic in the town. The 47th GST Council meeting presided over by Union Finance Minister Nirmala Sitharaman in June, approved a slew of changes to the taxing scheme including levy of 18% GST on the registered tenant. As per the modified law, the tenant must pay Goods and Services Tax at the rate of 18% when renting a residential property.
This has led to so many confusions in the minds of the people.
Clarifications from Government
Responding to the allegations that the house rentals may increase the country due to the new changes in the GST law, the Government, through the official twitter handle of the Press Information Bureau clarified on 12th August 2022 thatthe levy is applicable in case of renting of residential units to business entities only and the levy would not be applicable when it is rented to a private person for personal use.
It was further clarified that “No GST even if proprietor or Partner of Firm rents residents for personal use,” the twitter handle said.
As per the new rule, a tenant, who is registered under the GST, is required to pay Goods and Services Tax at 18 per cent for renting a property, effective from July 18.
The 18 per cent tax on rent paid is only applicable to tenants registered under the GST, meaning a GST-registered person who carries out business or profession will incur 18 per cent GST on such rent paid to the owner.
Concerns of Taxpayers
According to tax experts, until 17th July 2022, GST was applicable on the rent of a commercial property but from 18th July 2022, GST shall be charged if such residence is rented or leased by a GST-registered person/entity. As recommended at the 47th GST Council meeting, the tenant should pay 18 per cent GST on a reverse charge basis (RCM). However, they can claim this value as a deduction while they pay tax on sales in GST returns.
Further, the renting of residential dwellings up to 17th July 2022 was exempted regardless of the status of the tenant i.e. whether the service provider or service recipient is registered or unregistered.
However, there is no clarifications or circular issued by the Central Board of Indirect taxes and Customs (CBIC) till date explaining the issues/concerns raised.
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