The recent imposition of an 18% GST on residential rents across India is anticipated to have a significant impact on the rental housing industry in India.
The recent imposition of an 18% GST on residential rents across India is anticipated to have a significant impact on the rental housing industry in India. The Finance Ministry’s revenue department has implemented an 18% GST on housing rent across the country. This decision was made recently at the 47th GST council meeting. It should be noted that the service tax was first implemented in 2007 solely for commercial real estate rentals. When the GST was implemented in 2017, home ownership was exempt.
Previously, GST was not levied if a residential property was rented to anyone (whether registered or unregistered under GST).
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Residences rented to registrants will be levied at 18% GST under the new system.
Furthermore, the lessee must pay taxes, while the lessor is released from legal duties. If the provider (lessor/landlord) is registered for GST, the transaction will be treated as an outbound supply for reverse charge purposes. The landlord bears no additional GST duty since the recipient (tenant/lessee) bears the GST liability.
Per Article 17, claiming input tax credit is not permitted (2). Because incoming services are taxed under the RCM, and if the renter is registered for GST and takes over the rental property from anybody (registered or unregistered), GST will apply under the RCM. The beneficiary of the service (lessee/tenant) is responsible for paying his 18% GST. The recipient can also claim ITC (Input Tax Credit) for GST paid through reverse charge. It is because rent payments are considered business costs and therefore not included on the ITC block list under section 17 (5).
Renters renting homes for retirement or to provide staff and managers will be taxed as a result of this move. Furthermore, people or business owners who are GST registered and rent a residence for individual use rather than business expenditures are taxed. Government involvement is required. Rent taxation would be a contentious issue in nations such as India, where the bulk of the population is homeless.
Ironically, the relocation occurred at a time when the rental industry was on the verge of becoming one of the primary sources of income. The imposition of an 18% GST on apartment rentals will have a significant influence on buyer sentiment. According to industry observers, this decision will have a significant influence on the market for rental homes.
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Keep in mind that under GST law, a registered person can be either an individual or a business organization. This registration is required if the business or profession has an annual turnover that exceeds the threshold level. The limit for a registered person selling services is Rs 20 lakh, while the maximum limit for a registered person providing products is Rs 40 lakh. The limit is Rs 10 lakh per fiscal year if the registered firm is situated in the North Eastern or special category states. It will also have an impact on corporations and taxpayers who have leased out homes or apartments to their employees. Employees’ guest houses or apartments, for example, will be taxed. This will raise the cost of firms that provide free housing to their employees. Furthermore, the new GST law would raise the cost of any home lease arrangement including a registered person, such as a business or a corporate. It remains to be seen how the government manages the problem.
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