Essential Points to Remember Before Paying GST on Rental Income

Impact of GST on Rental Income in Hyderabad
09:32 AM 24 Oct 2018

When you let out an immovable property, you will receive rent. The rent received is taxable as income (as per the Income Tax Act) if it exceeds the taxable income of the landlord.

Are you Paying GST on Rental Income?

Goods and Services Tax (GST) is applicable from 2017. It replaces many indirect taxes such as service tax.

Before the implementation of GST,

  • The landlord who received rent had to pay service tax @ 15% on rental income if he let out the property for commercial purposes.
  • The rental income from the let out the property exceeds Rs 10 lakhs p.a.

GST rate on renting of immovable property (after implementation of GST),

  • He lets out the property for commercial purposes. He pays GST @ 18%  on commercial rental income if it exceeds Rs 20 lakhs per annum.

For example, Nitin who resides in Bengaluru lets out his property in Pune for commercial purposes for Rs 2 lakhs per annum.

As Nitin’s rental income is less than Rs 20 lakhs, he need not pay GST on rent.

However, if Nitin was earning a rent of Rs 2 lakhs per month, his yearly rental income exceeds Rs 20 lakhs. Therefore, he has to pay GST @ 18% on his rental income of Rs 24 lakhs.

The place of supply is Pune (which is the location of the immovable property).

When do you Pay GST?

You pay GST on Rent if:

  1. You rent out the property for commercial use.
  2. You let out the residential property for commercial use. For example, you have to pay GST on your residential property if it is let out to a company as a guest house.
  3. The rental income exceeds Rs 20 lakhs per annum.

Who has to Pay the GST?

The landlord collects from the tenant and pays GST if the above conditions are satisfied. He has to register under GST and pay taxes periodically.

How Much Should You Pay?

If you let out your property for commercial purposes and all the other conditions given above are met, you pay GST @ 18% p.a. on rental income.

GST is exempt if:

You let out the property for residential purposes.

If a registered charitable or religious trust owns and lets out an immovable property for religious functions if:

  • The rent of the room is less than Rs 1000 per day.
  • The rent of shops and other commercial space is less than Rs 10000 per month.
  • The rent of the function hall or open area is less than Rs 10000 per day.

How GST Will Affect the Tax Levied on Properties?

To compute GST on rental income, let’s look at an example:

Kavya living in Hyderabad is the landlord of a property in Bengaluru that she has let out to Alka to run a boutique for a monthly rent of Rs 3,00,000. Alka has to pay Kavya the monthly rent plus GST @ 18%. Kavya will deposit the amount collected as GST to the government.

Alka pays Kavya annual rent =                                   Rs 36,00,000

(Add) GST @ 18% (GST on rent paid)=                    Rs   6,48,000

Total amount =                                                             Rs 42,48,000

Kavya must deposit Rs 6,48,000 as IGST. (If both Kavya and Alka are in the same place or Kavya and the property is in the same place, GST split into CGST + SGST).

For more details about GST filing, get in touch with your Chartered Accountant.

Alka can claim Input Tax Credit (ITC) on GST paid to Kavya. Input tax credit is the credit for tax paid and can be adjusted while paying other tax dues.

Kavya must file the GST returns and deposit GST amount collected from Alka as per the GST returns filing schedule.

GST’s impact on home loans

A processing fee is collected whenever you apply for a loan. The processing fee is calculated as a per cent of the loan amount (it ranges from 0.25% to 1%) plus applicable taxes/GST. The loan applicant must pay GST @ 18% on the on processing fee.

For example, if you want to take a loan of Rs 25 lakhs, a processing fee @ 0.5% plus GST = 12500 + 2250 = 14750.

And, if you want to pre-pay a fixed rate home loan, the issuing bank charges 2% to 3% of the principal amount outstanding as prepayment charges plus GST @ 18% on it.

For example, if the principal outstanding is Rs 10 lakhs, the prepayment charge @ 2% plus GST = 20000 + 3600= 23600

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By: Lotus Tech