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GST Valuation of Rental Income

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The government has introduced GST in India to implement a single tax structure that yields increased transparency and accountability. Like other sectors, GST impacted the real estate and its various aspects such as construction, sale, purchase, lease, rent etc. Moreover, various provisions were laid down for regulating GST on rental income such as taxable services under GST, place of supply, exception limits for GST in case of services etc.

GST value is nothing but the amount of rent received from the commercial property owned by an individual. The commercial rent acquired must be more than Rs. 20 lakh a year. The amount of commercial rent less than Rs. 20 lakhs a year shall not be based on GST.

Impact of GST on Rent
The implementation of GST has rough out an organized approach to accumulate taxes from many sectors. Rent has been the primary source of income for many over the years.  When you rent out a residential property for residential purpose, it is exempted from GST; any other type of renting out of an immovable property for business would bring GST at 18%, as it would be used as a supply of service.

After GST was executed, the verge limit for applicability of GST has been enlarged to Rs. 20 lakh from Rs. 10 lakh that was in the situation before GST. It makes many landlords who were earlier covered under the service tax regime to be moderated up to another Rs. 10 lakhs earned.

Situation before GST
Before GST, the landlord had to obtain a service tax registration if his total taxable service exceeds Rs. 10 lakh per year. As long as the rental income does not beatRs. 10 lakh per year, the landlord would not be captivated to service tax.

Under the preceding tax regime, commercial properties alone that were let-out would attract service tax. It appeals even if a residential property is used for commercial purposes. Service tax was imposed at 15% of the rent for commercial properties.

Renting out a property attracts GST
According to the GST Act, leasing out of an immovable property would be managed as a supply of services. GST, however, will apply only to certain types of rent such as:

  • When a property is givenout onlease, rent, easement, or licensed to occupy.
  • When any property is leased out including a commercial, industrial, or residential property for business (either partly or wholly), these types of renting are considered a supply of services that would attract tax.

GST calculation on rental income earned from commercial property

  • GST is calculated at an 18% rate on the taxable income from commercial properties’ rent (includes 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 religious trustand is also managed by them then such spaces are immune from GST. However, GST is applicable only if such renting areas cost more than Rs. 1000 per day.

Provision of the tax deduction on income tax for rented property
The property (which is given on rent) has to gather the GST from the person paying rent; this GST will be based on the rent imposed. The payer of rent has to deduct income tax at source at 10% if the rent for the property exceeds Rs. 2.40 lakh per year. The TDS applies both to residential and commercial properties. There will be no GST on TDS. GST on the rent imposed for immovable properties by the government or local authority to a registered person will be under reverse charge operations. However, when the property is rented to an unregistered person, the government would themselves deduct GST.

At AJSH, we assist our clients in dealing with various GST matters (GST registration, filing of GST returns, claiming refund & GST audits) by providing them adequate support and guidance from our end. If you have any questions or would like to know more about Valuation of rental income under GST, kindly contact us.

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