Amid reports regarding 18 per cent GST on house rent for tenants, the government on Friday clarified that the renting of residential unit is taxable only when it is rented to a business entity, and said no goods and services tax will be levied when it is rented to a private person for personal use. It added that GST will also not be levied even if the proprietor or partner of a firm rents the residence for personal use.
According to the recommendations of the 47th GST Council meeting that have also become effective since July 18, a GST-registered tenant needs to pay a goods and services tax of 18 per cent for renting a residential property. However, the input tax credit in respect of such transactions may be sought on the ground of it being for the personal use.
Abhishek Jain, partner (indirect tax), KPMG in India, said, “This is welcome clarification by the government that will prevent unnecessary panic where people were under the false belief that residential renting of immovable property to unregistered persons would also attract GST.”
He added that more importantly, this clarification provides the much-needed relief to GST registered proprietors or partners in GST-registered firms who take on rent immovable property for their personal use, e.g. renting of a house for family accommodation, in which case the government has rightly clarified that GST will not be applicable.
Earlier, only commercial properties like offices or retail spaces given on rent attracted GST.
Pranjal Kamra, CEO of Finology Ventures, said, “Earlier iterations of the GST rules levied a tax on commercial properties like offices, retail spaces, etc. Under the purview of the new rules, however, rent paid for residential property used for carrying out business shall attract GST as well. The tax liability shall fall only on GST-registered assessees, i.e., people/firms that already are liable to file their GST returns; but not the owners of residential property.”
He added that the new rules would make businesses operating in residential properties taxable, that would use their own houses or similar properties to evade paying GST under the previous version of the GST rules.