GST on Rent of Residential Property

Introduction:

GST applicability on renting of residential properties in India has been an issue of concern due to continuous changes in the law since GST laws came into existence. The rules regarding renting residential property under GST had undergone changes from 18^th July 2022 due to a decision of the 47^th meeting of the GST Council. Again, the CBIC has come out with a new notification to clarify the scope of GST on renting of residential properties. Let’s dive into the provisions of GST on this issue.

At the very outset, we shall make it clear that renting an immovable property is considered a supply of service and it attracts GST at the rate of 18%. The CBIC recently issued Notification No. 15/2022- Central Tax (Rate) which is effective from 1^st January 2023. For a better understanding of the said notification, we shall first understand the provisions on this issue from the inception of GST in India.

Applicability of GST on Residential Properties up to 17^th July 2022

Entry at Sr. No. 12 of Notification No. 12/2017- Central Tax (Rate) prescribed that GST rate shall be ‘Nil’ in respect of “Services by way of renting of residential dwellings for use as residence”. Accordingly, GST was not applicable if the residential property was rented out to any person (whether a registered or unregistered person under GST) from 01^st July 2017 till 17^th July 2022. However, the legal position under GST changes with effect from 18^th July 2022. Please note that renting commercial property is always under the ambit of GST.

Applicability of GST on residential property w.e.f. 18^th July 2022

• The GST Council in its 47^th meeting recommended the Government impose GST on a person who has given property to a registered person for renting residential dwellings.
• Accordingly, the CBIC brought Notification No. 4/2022- Central Tax (Rate) dated 13^th July 2022 withdrawing exemption from GST earlier allowed in case of renting of residential dwellings. This notification was made effective from 18^th July 2022.

• The net impact of the above amendment is that w.e.f. 18^th July 2022, if a person provides services by way of renting residential dwellings for use as residence to a registered person, it shall be chargeable to GST at the rate of 18%.  

• It is important to note that GST will continue to be exempted in cases where a residential property is rented out to an unregistered person even after 17^th July 2022.

Now the next but obvious question will be “Who will pay tax to Government for renting of residential dwellings to a registered person?” The answer to this question lies in Notification No. 5/2022- Central Tax (Rate) dated 13^th July 2022. The said Notification inserted a new entry 5AA in the Notification No. 13/2017- Central Tax (Rate) dated 28^th June 2017 which specifies services liable for GST under reverse charge.

Entry No. 5AA specified that in case of services provided by any person by way of renting residential dwellings to a registered person, such registered person shall be liable to pay GST @ 18% under the reverse charge mechanism.

In nutshell, we can summarize that w.e.f. 18^th July 2022, if a landlord rents residential dwellings to a registered person (tenant), such tenant shall be liable to pay tax @ 18% to the Government. It shall be kept in mind that even if the landlord is registered under GST, the liability to pay GST shall be upon the registered tenant under RCM. This table will help you summarize:

                         Services of Renting of Residential Dwellings for residential use

After 18^th July 2022, a twist came in the story because of a judgment of the Delhi High Court in the case of Seema Gupta Vs. UOI. This judgment paved the way for further amendment in the above legal position. Let’s read the judgment of the Hon’ble Delhi High Court:

Delhi High Court Order in the case of Seema Gupta vs. Union of India dated 27^th September 2022

“The aforesaid clarification that renting of a residential dwelling by a proprietor of a registered proprietorship firm, who rents it in his/her own personal capacity for use as his/her own residence as well as not for use in the course or furtherance of the business of his/her proprietorship firm and such renting is on his/her own account and not that of proprietorship firm shall be exempt from GST, is accepted by this court and all the respondents are held bound by the same.”

Amendment for GST on renting of residential property w.e.f. 1^st January 2023

On 30^th December 2022, the CBIC issued Notification No. 15/2022- Central Tax (Rate) in line with the Delhi High Court judgment. An explanation has been inserted after Entry at Sr. No. 12 of Notification No. 12/2017- Central Tax (Rate) dated 28^th June 2017 which has been made effective from 1^st January 2023. The said explanation is as below:

In simple words, if an individual (proprietor) takes any residential dwelling for its own residential purposes and not for business purposes, such renting will be exempted under GST and thus not liable for GST under RCM. However, any such renting between the period 18^th July 2022 and 31^st December 2022 shall remain unaffected by this amendment and will continue to be taxed under RCM. There could be another opinion that you may take benefit of the judgment of the Delhi High Court.

Let’s take some illustrations for a better understanding:

Illustration-1: A company or firm (registered under GST) takes a residential dwelling on rent for the purposes of residence of employees, it will be liable to pay GST @ 18% under RCM and eligible to claim ITC of the tax so paid by it.

Illustration-2: A composition dealer registered under GST takes a residential house for the purpose of residence of employees, it will be liable to pay GST @ 18% under RCM but being a composition dealer will not be eligible to claim ITC of the GST so paid.

Illustration-3: A registered person taking residential dwelling for commercial purposes: Such renting will be treated as renting of a commercial unit, as such the above provision is not applicable to it. Thus, if the landlord is unregistered, then no GST shall be leviable under forward as well as a reverse charge. If the landlord is registered, such landlord shall be liable to pay GST @ 18% under forward charge and the tenant (if registered) is eligible to claim ITC of the same.

Illustration-4: If an individual takes a residential dwelling for use as residence for his/her family, it is not a business expenditure and therefore no GST is liable either from the landlord or the tenant in accordance with the amendment effective from 1^st January 2023.

About Author: The article has been contributed by Mr. Naveen Goyal who is a Chartered Accountant and has experience of more than 15 years in direct & indirect taxes including GST. He has a passion for writing and is contributing articles on various legal issues relating to taxation.

Disclaimer: The information contained in this article is meant only for educational purposes and thus has no persuasive value. Readers are, therefore, requested to act diligently and under consultation with any professional before relying upon the information contained in this article.

Notification 15 of 2022

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