By Rupin Chopra and Apalka Bareja
The Government has introduced a new GST Regulation for “Renting of Residential Property” with effect from July 18, 2022. As per the newly introduced amendment to the Goods and Services Tax (GST) regime in India, the service of renting a residential property to a GST-registered person shall be subject to GST under Reverse Charge Mechanism. In other words, when renting a residential property, a GST-registered tenant is required to pay GST on House rent at the rate of 18%.
The Existing Law
Commercial real estate was subject to GST, and it will continue to do so even after July 18, 2022. When a landlord’s annual revenue exceeds Rs. 20 lakhs for the delivery of rental services, they were required to register for the GST. GST was applicable to the landlord’s commercial property, irrespective of whether the tenant was GST- registered or not.
However, residential property was exempted from all taxes, regardless of whether the landlord or tenant was registered for GST or not.
The New Law
According to the new Regulation, with effect from July 18, 2022, regardless of whether the landlord is GST- registered or not, the tenant of a residential property who is registered for GST is required to pay 18% GST on House rent under Reverse Charge Mechanism.
A peculiar feature of this amendment is that the tax will be assessed using a Reverse Charge Mechanism (RCM), rather than in a conventional manner (forward charge). Reverse charge refers to a mechanism wherein the tax obligation is imposed on the beneficiary of the supply of goods or services rather than the supplier of such goods or services, in respect of notified categories of supply.
Exclusions under the New Law
The Regulation however, does not apply in the following cases:
- When renting a residential home, tenants who are not registered for the GST are exempted from paying it.
- When renting a home, the salaried class person is exempted from GST obligations.