5 Points: GST Impact On Rental Income


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 GST registration 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.