TDS and GST on Rent

Introduction: Renting property or assets involves various tax considerations, impacting both landlords and tenants. This comprehensive guide explores the tax deduction at source (TDS) on rental income under the Income Tax Act, covering sections 194I, 194IB, and 194IC. Additionally, it delves into the Goods and Services Tax (GST) on rent, including applicable rates, exemptions, and the Input Tax Credit (ITC) entitlement for tenants.

Rent is the payment made for tenancy, lease, sub lease or other arrangements for use of property or machinery, furniture or other assets.

Rental income is subject to Tax deduction at source under Income Tax Act and it is also chargeable service under GST Act.

Let us study these provisions in detail –

Income tax deduction at source (TDS) on rental income:

Section 194I, 194IB and 194IC of Income Tax Act cover the subject of tax deduction on rent payment i.e. TDS on Rent. Tax is required to be deducted by certain categories of payers as specified under these sections.

Section 194I governs TDS on rent. Section 194IB relates to TDS on Payment of Rent by Certain Individuals or HUF. Section 194IC refers to TDS on Payment Made Under Joint Development Agreement.

Who is liable to deduct tax?

• All persons except individuals and HUF paying rent to a resident person
• Individuals and HUF who are liable for tax audit u/s 44AB of the Income Tax Act
• The TDS has to be deducted if the total rent amount paid or payable during a financial year exceeds Rs.240000/-
• Individual and HUF (not covered under Tax Audit) who pay rent to a resident exceeding Rs. 50,000 per month are also liable to deduct tax on rent payment. This provision was introduced in Budget 2017.

Rate of Tax Deduction

• Rent of Land, Building, Furniture & Fittings 10%
• Rent of Plant, Machinery & Equipments 2%

Timeline for TDS deductions and Payment

TDS has to be deducted at the time of payment or credit of rent to the payee. Payment to the government must be made within 7 days from the end of the month in which the deduction is made. In case the amount has been paid/ credited in March, the due date of payment is 30th of April.

When the rental payment is made to government or local authority or statutory body no TDS is required to be made.

GST on Rent

Rent is a chargeable service under Goods and Services Tax Act. While TDS deduction is responsibility of tenant, charging GST is responsibility of landlord or owner.

Rate of GST on Rent

GST is charged @18% on rent amount. GST is leviable on renting of property for commercial use.

Is GST applicable on renting of Residential Property ?

Rent paid on renting of residential dwelling unit for use as Residence is exempted from the levy of GST. It should be noted that only residential dwelling unit for use as residence is exempted and not for use for office/commercial/ other purpose. Therefore, if a residential property is rented for use as office/showroom/any other purpose other than residence – GST on Rent @ 18% would be applicable.

From 18^th July 2022 exemption is available only if the tenant is not registered under GST Act subject to fulfilling of other conditions mentioned above, vide notification no. 04/2022. However, it should be noted that If the property is rented to a proprietor of a registered entity in personal capacity for use as residence no GST will be applicable. If a firm or company rents residential property for use as guest house or other purpose GST is applicable.

Other Exemptions from GST on Rent

1. The total value of services provided and goods supplied by the landlord during the year is less than Rs. 20 lakhs during the financial year and he is not registered under GST Act, or

2. Rent is being received by a registered charitable trust or a religious trust which owns and manages a religious place meant for the public and:-

a. The Rent on Rooms is charged Rs. 1,000 or less per day.

b. The Rent on Shops and other spaces for business are charged Rs. 10,000 or less per month.

c. The Rent on Community Halls or an open area is charged Rs. 10,000 or less per day.

ITC on GST paid

When GST is applicable on rent, the tenants paying the rent are entitled to claim an Input Tax Credit if they are registered under the GST Act. The taxpayer can claim a credit of the GST paid on the amount of rent.

Also, the GST charged should be deposited with the government to be able to claim ITC. Therefore, the tenants must make sure that the GST collected has been deposited by the landlord with the government before claiming ITC.

Place of Supply

The place of supply shall be the location of the property rented. Even though the owner resides in other state the place of supply shall be the state in which immovable property is located.

It is important to note that the applicability of GST is determined by the purpose for which the property is used and not by nature of the property.

Conclusion: Navigating the complexities of tax obligations related to rental income involves an understanding of both Income Tax and GST provisions. This guide provides insights into TDS on rent, GST implications, and the nuances of ITC, helping landlords and tenants comprehend their tax responsibilities and rights. Staying informed about these regulations ensures compliance and optimal financial management in the realm of property rentals