18% GST on rent explained: who will pay all the taxes after the government’s new rule on residential properties


Friday’s 47th GST Board meeting authorized a host of earlier proposed changes to the tax system. Under one of the current proposals, tenants would have to pay 18% GST on the rent of the house. Until now, the GST was applicable on residential properties that were used for business purposes, such as offices and stores. But now tax has to be paid on the rent of the property for any use.

However, not all tenants are required to pay the tax, which will come into effect from July 18. Under the new rules, GST registered tenants will be required to pay tax under the new rules. In a tweet, PIB said that “the rental of a residential unit is taxable only when rented to a commercial entity.”

Another tweet read: “No GST when rented to an individual for personal use; no GST even if the owner or partner of the business rents a residence for personal use”.

GST on rent explained

As mentioned above, everyone who has rented a property does not have to pay the tax. As per the new government rule, GST will be charged on residential properties, if rented or leased by a GST registered person/entity.

This would exempt most employees as they are not registered on the GST network. The Narendra Modi government has set the annual GST registration threshold at Rs 20 lakh for service providers and Rs 40 lakh for goods providers.

Under the new rule, the tax will be paid by the GST-registered tenant, not the landlord. This is called the reverse charge mechanism where the burden of paying the tax falls on the recipient of the good or service, not the provider of the service.

Who will pay and who will not pay

Employees who pay rent for residential properties will pay no GST under the rule. However, if a GST registrant rents or leases a house or apartment and carries on a commercial activity, they will have to pay 18% GST on the rent paid to the landlord.

Also, if the landlord and tenant are not registered for GST, the tax rules will not apply to the tenant. Also, if the landlord is registered for GST, but the tenant is not listed, the transaction will not contain the GST clause.


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