Everything You Need to Know About the Relevant Tax Rate for GST on Rent
GST has changed the way taxes are collected in India. Not only the residential but also the commercial real estate sector has been affected. Not only the capital market but the rental market has also been hit hard.
For example, the rental revenue from commercial units is subject to GST. Below are some of the other provisions and exclusions of the new GST regime in the rental property sector. GST has completely changed the way India collects taxes. There is a lot of talk about the tax levied on the purchase of real estate. However, there is not much clarity on the impact of GST on the rented property. The new unified tax regime has a big impact on the rental properties as it is collected on the revenue generated from these properties.
Before the introduction of the Goods and Services Tax (GST), a property owner would have to file a service tax return if the annual income of all the rented properties exceeds Rs 10 lakh. This applied only to commercial properties and residential properties for commercial purposes. If the total income of all the rental units is less than Rs 10 lakh per year, then the owner would not have to register for service tax. Before the introduction of GST, a commercial property earning more than Rs 10 lakh in rent would have to pay 15 percent of the service tax.
The Goods and Services Tax (GST) Act states that renting out a commercial property or commercial property used for business purposes is considered a supply of services. Therefore, GST will apply to the property when it is leased or rented out. The GST would apply to the following types of properties: Commercial property Industrial property Residential properties operating as a business The Central government has revised the threshold limit for the applicability of GST on rental income. With this revision, 18 percent of GST will be imposed on properties with an annual rental income of more than Rs 20 lakh as compared to Rs 10 lakh in the pre-GST era. For example, if a shop is rented out for a monthly rent of Rs 1 lakh or an annual rent of Rs 12 lakh, then no GST will be applied to the property owner.
The impact of the Goods and Services Tax (GST) on the rental property market is still in its early stages. The decision to raise the limit of applicability of the tax from Rs 20 lakh to Rs 30 lakh per year was beneficial for most of the shops operating in residential colonies. However, the impact of the new tax will be more visible for large corporations or businesses with multi-lakhs and multi-crore turnover.
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