Amended order, bringing residential dwelling rented under 18% GST tax payment


The Union Finance Ministry led by Nirmala Sitharaman Revenue department on July 13th, 2022 issued a gazette of central tax notification wherein it brought residential rentals under GST ambit from July 18th 2022 onwards with immediate effect.

The new notification amended the previous June 2017 order, bringing residential dwelling rented to a registered person under 18% GST tax payment.

However, no individual, who is living in a rented flat and does not have a registered GST number, will not have to pay 18% of GST. Meaning, that a salaried family staying in a rented house need not be required to pay 18% GST on rentals to the government if he is not a registered person.

As per the new July 2022 notification, when a residential dwelling is been given for rent to a person registered under GST it would be subjected to GST at the rate of 18%. Further, the GST has to be paid by the lessee (occupant) to the credit of the Government under the reverse charge mechanism (RCM).

However, the 18% GST on residential rentals depends on case to case basis. For example, builders accommodate tenants of redevelopment projects in privately rented flats. In this, the case will the builders have to bear the 18% GST is questionable. A lot of stakeholders believe the notification has to be studied properly so as to understand its implications accordingly.

Who comes in the GST ambit?

With this amendment, the lessee who takes a residential property on rent for the purpose of a guest house or for providing to their employee or directors would be subjected to tax. Supposedly, if a particular company takes a few flats on rent for its employee, so now as per the new obligation, it also needs to show the payment of 18% GST on the rentals to the government while filing the returns.

Who gets a GST number?

Any person who makes a supply of service more than 20 Lakhs and a supply of goods more than 40 Lakhs is liable for mandatory registration. A few states have different thresholds for registration.

What is the fear of this new amendment?

An unintended outcome of this amendment is that an individual or proprietor who is registered under GST and has taken a residential property on rent for his "personal use" and not as a business expenditure, would also be subjected to tax. Stakeholders want immediate government intervention.

What does the industry think about residential rentals drawing 18% GST?

Dr Niranajn Hiranandani - Vice Chairman - NAREDCO expressed, "The residential rental yield is low at merely 2% to 3% in comparison to commercial rental yield which is highly attractive at 8% to 10%. Imposing an 18% GST on residential rentals is detrimental as it will hurt the investments in residential properties. It shall be applicable to the individual liable to be registered under the Act of GST and thus the onus of paying tax lies on the lessee and not the lessor. High GST will also demotivate corporate entities to further offer rental housing to their employees, which shall impact institutional rental business."

Whereas, Vivek Rathi - Director of Research at Knight Frank India commented, "It will have a significant impact on the rental real estate market in India. The decision may hinder the expansion of rental real estate in India by increasing the tax burden on businesses that rent out residential properties to use as accommodation and guest houses for their employees."

Rathi further added that the residential rental product costs a consumer around 2.5% pa as rental yield and an additional cost of around 0.45% of the market value of the property will be an extra burden. Initially, landlords and tenants may agree to share the burden. However, eventually, the tenant will have to bear the burden .

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