The most recent 47th GST Council meeting has brought to light new regulations suggesting that GST would be applied to scenarios where residential properties are leased out to registered individuals, a shift that takes effect from July 18, 2022. This development has sparked extensive discussions surrounding the taxability of renting residential property within the context of GST. To set the record straight regarding the GST Law's existing framework up to July 17, 2022, we refer to Notification No. 12/2017, dated June 28, 2017. Under the GST Act, numerous services were exempted, including those related to leasing residential properties for habitation. Consequently, at that time, individuals—whether registered or unregistered—were not subject to GST on residential rent.
In light of the changes enacted post the 47th GST Council meeting, the new rules introduced through Central Tax (Rate) Notification No. 04/2022 in July 2022 demonstrate that CIBIC has cancelled the previously granted exemption for registered individuals. As elucidated via Central Tax (Rate) Notification No. 05/2022, issued on July 13, 2022, the operational scope now entails:
- Category of Supply Services: Services involving the rental of residential properties to registered individuals.
- Supplier of Service: All individuals and entities involved in providing rental services.
- Recipient of Service: Any person registered under GST.
The Press Information Bureau (PIB) clarified that tax obligations arise solely for rental transactions undertaken by business entities. Specifically, under the new framework, GST will be applied only when a business entity engages in leasing a residential unit. This means:
- If a private individual rents a property for personal use, GST is not applicable.
- Even in cases where the owner or partner of a business rents a residence for personal purposes, no GST liability arises.
Moving on, let’s evaluate the various circumstances regarding the application of GST on renting residential property starting July 18, 2022:
- Registered under GST: If both tenant and landlord are GST-registered, the tenant is responsible for paying the GST, facilitated through the reverse charge mechanism, thus enabling the tenant to claim an ITC.
- Renting from an Unregistered Landlord: When a tenant leases property from a landlord who is not registered for GST, the tenant still bears the tax liability through the reverse charge mechanism.
- Leasing from a Legal Government Landlord: If the tenant, who is unregistered under GST, rents from a legal landlord, tax liability does not apply here since the landlord is in accordance with Notification 12/2017 from June 29, 2017.
- Both Landlord and Tenant Are Unregistered: There’s no GST liability in this scenario, as both parties remain exempt according to Notification 12/2017 dated June 28, 2017.
Further complexities arise under the following situations:
- When companies, LLPs, firms, AOPs, or BOIs rent residential properties for their employees, GST will be paid via the reverse charge mechanism; ITC can be reclaimed.
- In instances where a registered composition dealer rents a home, GST is liable under RCM; however, because of specific rules for composition dealers, the GST paid cannot be claimed as ITC.
- If an individual, registered as a proprietorship business, decides to rent a residential property for personal use, GST must be paid under RCM, but it also falls under blocked credit, thus meaning it cannot be claimed as ITC. Nevertheless, a clarification issued by PIB on Twitter indicates that no GST is applicable in this scenario.