Residential propety

Pay 18% GST on residential rental

Not only kitchen budgets, new GST rules are also set to disrupt rentals. The Revenue Department of the Ministry of Finance introduced the 18% GST on residential rentals nationwide, effective July 18. According to the notification, residential accommodation rented to a GST registrant would be subject to an 18% tax. In addition, the tenant must pay the tax, which avoids the lessor legal obligations.

Notably, anyone who makes a supply of services above Rs 20 lakh and a supply of goods above Rs 40 lakh would be subject to compulsory registration under the GST regime.

With this amendment, the lessee who rents a residential property for the purposes of a guest house or for the provision of employees or managers would be subject to tax. GST tax consultant, Raveedaran Muthuswamy, observed that an unintended result of this amendment is that an individual or landlord, who is registered under GST, and who has rented residential property for personal use and not as a business expense, would also be subject to tax. This requires government intervention.

He further added that rent taxation in a country like India, where majority of the people are homeless, has been a sensitive topic since the era of utility tax. “The service tax was introduced on rents in 2007 only to the extent of commercial real estate. Residential property was excluded and was maintained even on the GST when it was introduced in 2017,” he recalled.

NAREDCO West Vice President Hitesh Thakkar believes the move will have a major impact on buyer sentiment. Meanwhile, Anand Gupta, chairman of the RERA committee and president of the Builders Association, said it applies to all residential units with registered GST numbers (with turnover of Rs 20 lakh ) under the reverse charge mechanism. Small unitholders will remain unchanged. He said that from a real estate perspective, this is a setback for promoting rental housing as a business.

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