For property owners and tenants alike, understanding the Goods and Services Tax (GST) on rent can be a bit tricky. The GST laws surrounding rental income have undergone several changes in recent years, and as a landlord or tenant, it's important to understand how GST applies to your rent and how to calculate it correctly. In this blog post, we’ll break down everything you need to know about GST on rent, how to calculate it, and how it impacts your rental agreements.
What is GST on Rent? GST (Goods and Services Tax) is a value-added tax that applies to the supply of goods and services in India. When it comes to rent, GST is levied on commercial properties, but residential rents typically fall outside the scope of GST. This means that the GST applies to renting a property for business or commercial purposes, but not for residential leasing.
When Does GST Apply on Rent? GST on rent applies under the following circumstances:
- Commercial Properties: If you're renting out a commercial property (such as office space, retail space, or warehouses), GST is applicable.
- Property Let-Out for Business Purposes: If the rented property is used for any form of business activity, the rent is subject to GST.
- Taxable Person: The landlord must be a “taxable person” under GST laws, meaning they must be registered for GST if their rental income exceeds the threshold limit.
When is GST Not Applicable on Rent? GST is not applicable on rent in the following situations:
- Residential Properties: If you’re renting out a residential property, GST is not applicable.
- If the Landlord is Not Registered for GST: If the landlord's rental income is below the prescribed threshold limit, GST does not apply.
- Renting for Personal Use: If the rented property is used for personal purposes, it does not attract GST.
How to Calculate GST on Rent for Commercial Properties: To calculate GST on rent for commercial properties, you need to consider the following:
- GST Rate: The GST rate for renting commercial property is 18%. This includes both Central GST (CGST) and State GST (SGST), each levied at 9%. If the rental is within a special economic zone or interstate, the GST rate may differ.
- Calculate Rent Before GST: Start by determining the base rent amount (before GST).
Apply the GST Rate: Multiply the base rent by the GST rate (18%) to calculate the amount of GST.
Formula:
GST Amount = Base Rent x GST Rate (18%)
Example:
If the base rent is ₹50,000 per month, then the GST amount is:
₹50,000 x 18% = ₹9,000
Total Rent (with GST) = ₹50,000 + ₹9,000 = ₹59,000
GST Calculation for Different Rental Scenarios:
- Renting Office Space:
- Base Rent: ₹30,000
- GST Rate: 18%
- GST: ₹30,000 x 18% = ₹5,400
- Total Rent: ₹30,000 + ₹5,400 = ₹35,400
- Renting Warehouse Space:
- Base Rent: ₹75,000
- GST Rate: 18%
- GST: ₹75,000 x 18% = ₹13,500
- Total Rent: ₹75,000 + ₹13,500 = ₹88,500
How GST on Rent Affects Tenants: For commercial tenants, the rent payable will include the GST amount, which means the tenant will need to account for the tax in their budget. However, tenants who are GST-registered can usually claim back the GST paid on rent as an input tax credit, provided the rented property is used for business purposes.
How GST on Rent Affects Landlords: Landlords who are registered under GST must collect the GST on rent and remit it to the tax authorities. If the landlord’s total taxable turnover (including rental income) exceeds the threshold limit, they must obtain GST registration and comply with GST regulations. Landlords must also issue GST-compliant invoices and maintain records of GST payments.
Exemptions and Special Cases:
- Residential Rent Exemption: Residential rent is completely exempt from GST, which means landlords who only rent out residential properties don’t need to worry about GST on their rental income.
- Special Economic Zones (SEZ): For commercial properties located within SEZs, GST may be zero-rated under certain conditions.
- Subletting: If a tenant sublets the property, GST may apply to the sublet rent if the primary rent was subject to GST.