Renting apartments gets costlier for companies with new GST rates in effect

As the revised rates of GST after the 47th GST Council Meet came into effect earlier this week, apartments for senior executives rented by companies will now cost more. The rent of apartments for top executives will attract an 18 per cent Goods and Services Tax (GST). 

 

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. 

 

Firms renting out apartments will pay GST as pure cost, and no tax credit will be available. 

 

An Input Tax credit means claiming GST paid on purchasing Goods and Services can be set off against future tax liability.

 

Talking to The Economic Times, Vivek Jalan, Partner at Tax Connect Advisory, said, "This would have a big impact on corporations who take guest houses on rent or take residential houses on rent for the use of their employees."

 

He added, "Furthermore, going by experience in such cases, the input tax credit (ITC) of GST on this rent paid by corporates may be disputed by the GST department arguing on the basis of Section 17(5)(g) of the CGST Act 2017 where the ITC of GST paid for any service for personal consumption is blocked." 

 

"The new GST law would increase the cost of every rent agreement where the transaction involves a registered person, such as a company or a corporation. The 18% additional cost on the rent could either be borne by the company or the landlord, depending upon the commercial arrangement thereof, " a tax partner at KPMG India, Abhishek Jain, told ET.

 

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, the ET report said. 

 

Pradeep Prajapati, the founder of Wealthvisory Capital, told ET that this move will "affect high-end rental transactions in metro cities as many MNCs take apartments on rent by paying anywhere between Rs 1 lakh and Rs 15 lakh a month and give them to top executives."

 

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. 

 

"It would not have any impact on the total outgoing for self-employed professionals and small business owners. However, residential leasing is an inherent demand which will not evaporate merely by higher taxation. Certainly, there will be a marginal slump or rental stagnation, and rental yields in top cities can moderate in the coming months, as the market acclimates to the new tax-induced dynamics," Piyush Bothra, Co-Founder and CFO, Square Yards, told ET.