Renting out properties is a booming business these days. Whether you’re renting out your home to tenants or leasing out as office space to businesses, you need to be aware of the latest GST rules.
GST, or Goods and Services Tax, is a tax that is applied to most goods and services sold in India.
If you’re renting out a property, it’s important to understand the GST rules on Residential Property so that you can comply with the law and avoid any penalties.
A Guide to Rental Income Taxation in India
- Income from residential property rent is taxable and must be submitted through ITR Filing.
- This income falls under the category of “income from let-out property” for income tax purposes.
- The tenant is responsible for deducting the appropriate TDS (Tax Deducted at Source) if the total rental income exceeds Rs. 2,40,000 per year or the monthly rent is above Rs. 50,000.
- If the above criteria are met, the tenant must do TDS Return Filing.
- In July 2022, GST (Goods and Services Tax) was introduced on renting residential properties.
GST on Rental of Residential Property: What You Need to Know
- The rules concerning the rental of residential property were modified on 18th July 2022, following the 47th GST council meeting.
- Starting from 18th July 2022, GST is applicable to the renting of residential properties for residential use, but only to registered individuals.
- Renting a residential property for residential purposes to a registered person now falls under the Reverse Charge Mechanism (RCM) for GST payment.
The Reverse Charge Mechanism for GST on Residential Property
| S.No | Landlord under GST | Tenant under GST | Applicability of GST |
| 1 | Unregistered | Unregistered | Not Applicable |
| 2 | Registered | Unregistered | Not Applicable |
| 3 | Unregistered | Registered | GST @ 18%. Payable by Tenant under reverse charge mechanism |
| 4 | Registered | Registered | GST @ 18%. Payable by Tenant under reverse charge mechanism |
Important Note: You don’t have to pay GST if you rent your residential property to a registered individual and they use it for their personal residence, not for their business.
Conclusion
It’s essential for both residential property owners and buyers to grasp how GST works on residential property transactions using the Reverse Charge Mechanism. When residential property owners have GST Registration, they can claim tax credits for their expenses and openly pass on the tax responsibility to the buyers. For buyers, making sure residential property owners follow GST rules gives them confidence that the transaction is legal. Furthermore, buyers doing GST Return Filing on time can make the process easier and add credibility to the business. If you have any further questions, please do not hesitate to contact us.
Moreover, If you want any other guidance relating to GST on Residential Property Based on RCM, please feel free to talk to our business advisors at 8881-069-069.
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