The government has clarified that no goods and services tax (GST) will be applicable if a business establishment rents a property for personal use.
“Renting of residential units taxable only when it is rented to a business entity,” PIB’s fact-checking Twitter handle said on Friday.
Claim: 18% GST on house rent for tenants #PibFactCheck— PIB Fact Check (@PIBFactCheck) August 12, 2022
▶️Renting of residential unit taxable only when it is rented to business entity
▶️No GST when it is rented to private person for personal use
▶️No GST even if proprietor or partner of firm rents residence for personal use pic.twitter.com/3ncVSjkKxP
Responding to a media report that GST-registered tenants will need to pay goods and services tax, it clarified that “no GST to be charged when it is rented to a private person for personal use.”
Regarding the applicability of GST for the proprietor or partner of a firm, PIB said: “No GST even if the proprietor or partner of the firm rents residence for personal use.”
“A salaried individual not registered under GST need not pay any taxes as it applies only to tenants registered under GST,” said Bhavya Sharma, a company secretary, lawyer, and founder of business consultancy firm Bhavya Sharma and Associates (BSA).
The PIB fact-check task was created to counter misinformation on government policies or schemes and, from time to time, alert the citizens about misinformation circulating in the public domain.
Archit Gupta, founder and CEO of Clear, a tax-filing assistance company said that if a person is a gig worker or consultancy service provider or an e-commerce seller, working from his rented home, without appropriating the rental expense as a business expense deduction in an income tax return, in such a scenario, he can still refrain from paying GST on a reverse charge basis.
It is because the person is using the place only for residential purposes.
"However, if you show this rental expense as a deduction for income tax purposes, then be sure to compute and pay GST regularly in the monthly/quarterly GST returns you file. Note that where you are registered as a composition taxable person. Here, you cannot claim the input tax credit on rental expenses but might still have to pay GST on rent on a reverse charge basis," adds Gupta.
Bhavya Sharma of BSA added, "18 per cent GST will be levied on residential property rent under the Reverse Charge Mechanism (RCM)."
When Do You Need To Be Registered?
Gupta explains that under the GST law, persons include both individuals and corporate entities. Hence, registration is needed when the person owns a business or has a profession with an annual turnover of more than the threshold limit defined under the law.
The annual turnover limit varies according to the nature of the supply, and the state or the union territory (UT), where the principal place of supply is located.
For persons rendering only services, the limit is Rs 20 lakh in a financial year. For goods suppliers, the limit is Rs 40 lakh, and for persons in north-eastern or special category states, the limit is Rs 10 lakh.
Additional inputs from Neelanjit Das