Impact of GST Council's Changes on Residential Property Rentals
The 47th GST Council convened on June 28 and 29, 2022, resulting in several amendments to the Goods and Services Tax (GST). A notable change involves the partial removal of the GST exemption for services related to residential property rentals.
Background on GST Exemption
Before these changes, services pertaining to the rental of residential properties for residential use were exempt from GST, starting July 1, 2017. However, some aspects of this exemption have been withdrawn, effective July 18, 2022.
It is important to understand that the GST implications on residential and commercial rentals hinge on intended use. Renting a residential property for commercial activities still makes the income subject to GST.
Overview of Notifications
The following notifications highlight the changes:
| Particulars | New notifications | Old notifications which are amended vide the new notifications |
|---|---|---|
| Notice covering exemption available under GST | Notification no. 04/2022- Central Tax (Rate) dated 13th July 2022 [amendment effective from 18th July 2022] | Notification no. 12/2017- Central Tax (Rate) dated 28th June 2017 |
| Notification covering the applicability of the reverse charge mechanism | Notification no. 05/2022- Central Tax (Rate) dated 13th July 2022 [amendment effective from 18th July 2022] | Notification no. 13/2017- Central Tax (Rate) dated 28th June 2017 |
This article delves into how the modifications impact GST on residential property rentals.
GST on Residential Rentals Until July 17, 2022
From the start of GST on July 1, 2017, entities renting out residential properties for habitation qualified for a GST exemption. This stemmed from SI No. 12 of Notification No. 12/2017- Central Tax (Rate) dated June 28, 2017, as shown below:
| Heading | Description of service | Rate | Condition |
|---|---|---|---|
| Heading 9963/ Heading 99721 | Facilities through the rental of a home for use as a residence | NIL | NIL |
This clearly stated that renting a residential property for residential use was fully exempt. Conversely, GST was applicable when the property was rented for commercial purposes.
GST on Residential Property Rentals from July 18, 2022
Notification number 04/2022- Central Tax, dated July 13, 2022, amended SI. No. 12 of notification number 12/2017- Central Tax (Rate) dated June 28, 2017. The updated text includes “except where the residential dwelling is rented to the registered person.”
Consequently, post notification no. 04/2022- Central Tax (Rate) dated July 13, 2022, SI. No. as of July 18, 2022, now reads:
| Heading | Description | Rate | Condition |
|---|---|---|---|
| Heading 9963/ Heading 99721 | If the property is not rented by a registered person, renting it to be used as a home is prohibited | Nil | Nil |
From July 18, 2022, GST on residential rentals is applied as follows:
| Particulars | GST Position post 18th July 2022 |
|---|---|
| Renting a residential property for residential use to the person registered under GST | Taxable as of July 18, 2022 (Free from 1 July 2017 to 17 July 2022 and Taxable from 18th July 2022) |
| Renting a residential property for a personal reason to an individual who isn’t registered with the GST | Exempted from 1st July 2017 |
| Rental of a residential property for a business purpose to a person who registered for GST | Taxable from 1st July 2017 |
| Renting a home for a business for an individual not registered under GST | Taxable from 1st July 2017 |
Reverse Charge Mechanism Modification
Notification No. 13/2017-Central Tax (Rate), dated June 28, 2017, enlists services under the Reverse Charge Mechanism. Notification No. 05/2022 – Central Tax (Rate), dated June 13, 2022, added SI. NO. 5AA to this list, detailed below:
| SI.No. | Description of Service | Service provider | Service receiver |
|---|---|---|---|
| 5AA | Renting the residential dwelling to the registered person as a service | Any person | Any registered person |
Under the Reverse Charge Mechanism, the registered person (service recipient) is responsible for paying GST when renting a residential property. This means the registered service receiver handles GST payment, regardless of whether the service provider is GST-registered.
Conclusion: GST on Residential Property Rentals
The table below summarises GST implications on residential property rentals from July 18, 2022:
| Particular | GST Applicability | GST payable by the service provider | GST payable by the service receiver |
|---|---|---|---|
| Services of renting of residential dwelling for residential purposes to the person registered under GST | GST-taxable as of July 18, 2022 | No | Yes |
| Services related to renting a home for private purposes to a person not registered under GST | Exempted | NA | NA |