GST Policies on Income from Rent

GST Policies on Income from Rent

With Goods and Service Tax (GST) being evident in every sector then how can the income from rent escape the premises. Well, GST is much modernized and a well-structured tax collecting mechanism as compared to any tax system in India. Nothing is 100% fine therefore provisions are still being introduced to eliminate the minute flaws of GST.

For now, let’s talk about the effects of GST implementation on rental income and what it was before GST. 

Laws before GST

Before the initiation of GST the owner whose taxable earnings from rent exceeds Rs. 10 Lakhs a year has to pay service tax to the government on the taxable amount. Contrary to that, if the owner’s total taxable income from the rent of all the properties is less than Rs. 10 Lakhs per year then clearly he is immune from paying any services tax to the government. 

Another prominent rule was that tax was levied only on renting the commercial properties. Owners will come under the ambit of paying 15% tax on the total taxable income they get from renting out their commercial properties. The law remains if the residential space is given out on rent for commercial use. Rental Income from any residential property will not bring any tax obligations for the owner. 

Laws After GST

Under the GST regime, tax collection mechanism has been completely transformed for the betterment of the property owners. As per current laws, there is no tax on income earned from renting the residential house. Clearly, the owner is exempt from paying tax on the income from houses or houses he/she has given out on rent.

Another amendment is that the pre-GST threshold limit for total taxable income on commercial properties (i.e. Rs. 10 Lakhs) has been increased to Rs. 20 Lakhs. Means now the tax on income from the rent of commercial property will be charged only if it exceeds the threshold of Rs. 20 Lakhs per year.    

GST Effects on Rental Income of the property owner

There is a positive impact of GST on property owners who are getting income from rent. As discussed earlier, the owner is immune from paying tax on the income he/she receives from renting out a residential property. However, the taxable income from renting out a commercial space will invite tax at the rate of 15% (only if it exceeds the threshold limit of Rs. 20 Lakhs per year).

Adding on to this if the property is given on lease by the owner to a second party then the GST rate will be 18%, as it is considered the supply of service. 

Calculating GST on rental income earned from commercial property

Getting the figures of GST applicable to rental income from a commercial property:

• GST is calculated at an 18% rate on the taxable income from the rent of commercial properties. They are included in the supply of services.  
• Rent for shops and other business spaces is Rs. 10,000 or less per month
• Rent for community halls or any open area is Rs. 10,000 or less per day
• Properties listed under the name of any charitable or religious trust and is also managed by them then such spaces are immune from GST. However, GST is applicable only if such rooms or resting spaces cost (for the common man) more than Rs. 1000 per day. 

Note: Also you can file GST return via Gen GST Software. This software completely decade and designed by SAG Infotech PVT. Ltd. 

Tax Deduction policy on income from rent

Provided by law, the tenant of a rented commercial property has to deduct GST at the time of paying the rent to the owner. Commonly known as Tax Deducted at Source, the person paying the rent needs to deduct 10% TDS on the amount of rent he is paying to the owner. The amount will be submitted to the tax officials by the tenant or deductor.

Please Note; 10% TDS is applicable to the amount of rent from both residential as well as commercial property. On TDS there is no GST.  

Also, the tax charged by legal authorities on the rental income from immovable property rented to a registered person then it is listed under the Reverse Charge Mechanism. On the other hand, if the property is rented to any unregistered person then the government will deduct GST on their own which is known as the Forwarding charge mechanism.