The implementation of the Goods and
Services tax has affected not only businesses but all kinds of
income-generating activities in the country. Companies engage GST
consulting services to get
assistance on business registration and filing returns. Many
individuals have also been affected by the new tax. One such category
of people is that of property owners who earn incomes by renting out
their assets. In this article, we are examining the GST
impact on rental income. While
property owners have to evaluate the tax on their income, the tenants
have to deduct the TDS (tax deducted at source) if they pay rent over
a specified limit. Let’s take a look at how the new tax has
affected the rental income earned by property owners.
1. Difference Between Pre-GST Period And Now
Earlier, property owners had to get a
registration for service tax in case their income from rent exceeded
the figure Rs. 10 lakh in a year. Landlords whose rental earnings
were below this figure did not have to get the service tax
registration. Moreover, if the asset was rented out for commercial
purposes, then service tax at a rate of 15% was charged. The rule was
applicable even if a residential property was let out for commercial
usage. No service tax was charged on earnings from residential
properties let out for residential purposes. After the implementation
of the new law, GST becomes applicable if an asset is given for
lease, rent, easement, or is licensed to occupy.
2. Residential Property Rent Is Exempt From GST
The money earned as rent from an
immovable asset categorized as a residential property let out for
residential purposes is exempt from the new tax. The threshold limit
for applying GST is Rs 20 lakhs meaning the rental earnings more than
the figure will attract the tax. This has come as a huge relief for
many landlords as the new threshold figure is double of the earlier
service tax limit of Rs 10 lakhs. This is a significant GST
impact on rental income.
3. GST On Commercial Property Rent
As mentioned earlier, the new tax will be
levied only if an asset is let to another party for commercial
purposes. The rental income, if it is above the threshold limit will
be treated as a taxable supply of service and taxed at a rate of 18%.
Moreover, the taxpayer will have to get the GSTregistration for service provider
in the location where the service is being supplied i.e in the area
where the property is located. For instance, if the taxpayer is a
resident of Delhi but has an asset in Mumbai which earns rent over
the threshold limit, then she will have to get the registration in
Mumbai as the property is located there. However, a registered
charitable trust or a religious trust owning and managing a religious
place for public use does not need to pay GST if the rent is less
than Rs. 1000 per day/ monthly rent of shops is less than Rs 10,000/
daily rent of community halls is less than Rs 10,000.
4. Claiming Input Tax Credit On GST Paid On Rent
An input tax credit for the GST paid on
rental earnings can be claimed by the taxpayers to pay other tax
dues. The credit can be claimed only if all the specified provisions
for the purpose have been fulfilled by the taxpayer.
5. Tax Deduction On Income Tax For The Rented Property
The individual renting out his/her
property is liable for collecting the GST from the tenant. The tenant
has to deduct income tax at source at 10% if the annual rent for the
property exceeds Rs.1.80 lakh. TDS does not attract GST and is
applicable on commercial and residential properties.
Conclusion
The main points of this brief assessment
of the GST impact on rental
income are that many owners
who earlier paid service tax are now exempt from the new tax because
of higher threshold limit and compulsory registration at the place of
supply of service.
