Do you need to pay 18% GST on rent?

The 47th GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman in June, put its stamp of approval on a host of changes proposed in the taxing regime. The changes came into effect from July 18.

And one of them mandated tenants to pay 18% GST on home rent. Till now, GST was applicable only when the residential property was used for commercial reasons like offices and shops. Now, the tax has to be paid on rent of property for any use.

However, not everyone who has rented a property needs to pay the tax. Only GST registered tenants are liable for tax under the new rules. Now, who are these GST registered persons? The annual threshold limit for GST registration is turnover of 20 lakh for service providers and Rs 40 lakh for goods suppliers. This means, the salaried class who are mostly not GST registered are exempt from paying GST on rent.

Who will pay the GST on rent

For GST registered persons, the tax will be charged through the reverse charge mechanism (RCM), where the tenant will be liable to pay the tax and not the owner. For instance, if a company rents flats for accommodating employees, it is deemed as a tenant and will be liable to pay the GST. Under reverse charge mechanism, the liability to pay tax is on the recipient of a good or a service instead of the supplier of such good or service.

Some possible scenarios

If the landlord is unregistered under GST and the tenant is registered, then the tenant will have to pay the tax under new rules. If both the landlord and the tenant are unregistered under GST, then the tax rules won't apply to the tenant. In another scenario, if the landlord is GST registered and the tenant is not, GST won't apply to this transaction.