GST on Rent above Rs. 20 Lakhs and under Reverse Charge Mechanism

By | 16th July 2017

If you have taken home on rent for residential purpose, you need not worry about GST. Rental income from residential property has been exempt from GST just like as was exempted under service tax.

However, any earning over Rs 20 lakh annually from renting or leasing for commercial purposes would attract GST.

Purpose for which premises are used need to be considered for applicability of GST. Hence, if the house property is rent out for shop or office purpose, GST will be levied if earning is over Rs 20 lakh.

Rental income received from residential house is exempt. However, if you have given your premises for commercial use, then it is taxable if you are getting rent of more than Rs 20 lakhs per annum.

Person earning more than exempted threshold of Rs. 20 lakhs need to register at GST network and pay taxes.

Service tax has not been levied on renting of residential property in earlier tax system and the same has been kept in GST tax regime too. However, GST @ 18% need to be levied for renting of commercial premises. This is the reason many builders are likely shift to residential construction.

There is one more major tax implication under the GST, with respect to rent on commercial properties. The concept of ‘reverse charge mechanism’ has been taken from the service tax regime, under the GST. In the service tax regime, reverse charge mechanism is applicable in case of services and is not extended to the sale or manufacturing of goods, however the same is made applicable for goods as well as services under the GST regime. A person who is registered under GST, who gets supplies of goods or services from a person who is not registered under GST, will have to pay the GST under the reverse charge mechanism. Under the service tax regime, there is no provision of reverse mechanism, with respect to the rent paid by the lessee.

GST is required to be paid on rent under reverse charge mechanism on renting of commercial premises if the landlord is not registered under GST.

Category: GST

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