Govt levies 18% GST on residential rental

The Finance Ministry’s revenue department has introduced 18 percent GST on residential rentals across the country. A residential home rented to a person registered under GST would attract a tax of 18 percent.

With this amendment, the tenant who takes a residential property on rent for the purpose of a guest house or for providing employees or directors would be subjected to tax. The tenant needs to pay the tax, keeping the landlord out of legal obligations.

While commercial properties such as offices or retail space on lease earlier attracted GST, the lease of residential properties by companies or individuals did not attract any tax. Primarily, any person who makes a supply of service over Rs 20 lakh and supply of goods over Rs 40 lakh would be liable for mandatory registration under the GST regime.

However, this GST rate change will not affect the overall rental market as tenants, who mostly comprise the salaried class, will not be affected by the move. For example, if a landlord rents an apartment to a company for its CFO at Rs 1 lakh per month, a GST of Rs 18,000 will be charged monthly. It depends on landlords and companies who will bear the cost of GST; either they can split the cost or absorb it entirely.

GST tax consultant Raveedaran Muthuswamy observed that an unintended outcome of this amendment is that an individual or proprietor, who is registered under GST, and has rented a residential property for personal use and not as a business expenditure, would also be subjected to tax.

He further added, “Service tax was introduced on rents in 2007 only to the extent of commercial property. Residential property was excluded and was continued even on GST when it was introduced in 2017.”