All about the Amendments to the GST rate for renting immovable property

Introduction

The government has issued a new GST Regulation for “Rental of Residential Property,” on July 18, 2022. According to a recently passed modification to India’s Goods and Services Tax (GST) system, the provision of residential property rental services to GST-registered individuals will be liable to GST under the Reverse Charge Mechanism. That means a tenant who is GST-registered must pay GST at the rate of 18% when renting a residential property. The thorough information in this article will help you know more on the amendments to the GST rate for renting immovable property.

Insights of the amendment to the GST rate for renting immovable property

Let’s examine the modifications to the renting of immovable property. The service is primarily separated into two categories: residential and commercial property.

Commercial property – Commercial property leasing has always been subject to forward charge taxation, which requires the supplier of the service (the landlord) to add GST to the rent payment. Goods and Services Tax (GST) will not be payable only in case in which the landlord is not registered. (His total revenue is less than the threshold limit of 20 lacs)

Residential property – Residential property rentals for residential use were exempt until July 17, 2022. However, there is no general exception as of today.

Renting Residential Properties to a GST-registered Business

• Taxability on Entity for Residential Use: This became taxable on July 18, 2022. The Service Provider is not required to charge GST under the Forward Charge Mechanism, but the Service Recipient will do so under the Reverse Charge Mechanism (RCM). Even if a business entity uses it for workers’ or directors’ residential purposes and records the expense in its accounts, Reverse Charge Machinism still requires it to levy Goods and Services Tax (GST). It is exempt to rent residential property for residential purposes to a GST-registered proprietor. There is no obligation or compliance with the service for either the landlord or the tenant. As a result, renting residential property for an unregistered person’s residential use or a registered proprietor’s personal use will only be exempt from forward or reverse charges.

• Hotel Accommodation Taxation: Prior to July 18, 2018, the cost of lodging per unit per day that was less than Rs. 1000 was excluded.  The exception has been eliminated from 18.07.22.  Any hotel accommodation is taxed at 12% for amounts up to Rs. 7,500 and at 18% for amounts over Rs. 7,500 (eligible for ITC)

• Taxation on Educational institution that provides housing to students: Commercial coaching institutions that offer student housing are subject to an 18% tax if the two services are combined. If the hostel facility is separated and only used temporarily (let’s say for less than a year), it is 12% taxable. Hostel facilities are exempt if they are used long-term, have a valid rental agreement, and aren’t combined with coaching services.

• Taxation on Dhramshalas/Religious locations that rent out real estate: Renting out rooms for occupancy is exempt if the daily rate per room is less than Rs. 1000. alternatively, taxable.  Rental fees for buildings, halls, and Kalyan mandapam are exempt if they are less than Rs. 100,000 per day. alternatively, taxable

• Taxation on Rent for stores or other business premises: Rent for stores or other business premises is exempt if it is less than Rs. 10,000 per month. alternatively, taxable.

Conclusion

The renter of a residential property who is registered for GST is required to pay 18% GST through the Reverse Charge Mechanism in accordance with the GST Regulations. This amendment’s odd aspect is that the tax will be counted separately than usual, utilizing a Reverse Charge Mechanism (RCM). In the case of notified categories of supply, reverse charge refers to a procedure in which the tax requirement is imposed on the recipient rather than the supplier of such products or services.