01 Mar Implications of GST on Renting Residential Dwellings for Commercial Activities
In accordance with notification number 12/2017, entry number 12 dated 28th June 2017, rental income derived from leasing residential dwellings for residential purposes enjoys exemption from GST without any conditions or limitations. However, when residential properties are leased out for business purposes, they fall under the ambit of GST and thus are subject to its provisions. Consequently, rental income generated from residential properties utilized for commercial activities becomes liable to GST, without any exemptions granted.
When Does GST Become Applicable on Rental Income from Commercial Activities?
Under the new tax regime, the threshold for exemption on rental income from commercial activities has been raised from 10 lakhs to 20 lakhs. This implies that individuals earning rental income from residential dwellings for commercial purposes are obligated to pay GST on such earnings.
GST Rates on Renting Residential Dwellings for Commercial Purposes
Income arising from the leasing of residential dwellings for commercial use is subjected to GST at a rate of 18%. GST applies when the rental income surpasses 20 lakhs. Conversely, if the rental income remains below 20 lakhs, GST is not applicable. However, exemptions from GST apply to rental income derived from the leasing of religious places owned and managed by registered charitable or religious trusts for public use. Nevertheless, certain exceptions to claiming exemption exist:
- If the room rent exceeds Rs 1000 per day.
- If the rent for premises, community halls, open areas, etc., exceeds Rs 10,000 per day.
- If the rent for shops or commercial spaces exceeds Rs 10,000 per day.
Claiming GST on Rent for Input Tax Credit (ITC)
Taxpayers can claim input tax credit on GST paid provided they meet all the terms and conditions for claiming such credit. The conditions for claiming input tax credit include:
- The owner of the leased property must collect TDS from the rent payer.
- The rent payer must deduct income tax at source (TDS) at a rate of 10% if the annual rent for the property exceeds Rs 180,000. Failure to comply with these regulations may result in penalties or prosecution.
Determining the Place of Supply for GST on Commercial Rent
Under GST, the place of supply for commercial rent from immovable property is determined by the location of the property. For instance, if a property is situated in Mumbai while the tenant resides in Jaipur, the place of supply would be Mumbai, and Mumbai would receive the State Goods and Services Tax (SGST).
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