What is Change in GST on Renting of Residential Property?

Arjuna (Fictional Character): Krishna, What is the new change regarding GST on renting of residential property?

Krishna (Fictional Character): Arjuna, the changes relating to GST rate, in pursuance of recommendations are coming into effect from the 18th of July 2022, CBIC has issued notification no. 5/2022 regarding Reverse Charge on renting of residential dwelling for use as residence to a registered person. Let’s analyse it.

Arjuna (Fictional Character): Krishna, What was the applicability of GST on renting of residential dwelling before and after issuance of this notification?

Krishna (Fictional Character): Arjuna, till 18th July,2022, Renting of residential dwelling for use as residence either to a registered person or to a unregistered person was exempt from GST.

And after issuance of this notification, GST will be applicable as follows:

Arjuna (Fictional Character): Krishna, What are the scenarios where reverse charge will be applicable on renting of residential dwelling?

Krishna (Fictional Character): Arjuna, As per the notification, the GST shall be paid @ 18% by the recipient of renting of residential dwelling, if the recipient of such service is registered under GST.

Following are some of the scenarios for better understanding:

1) If company who is registered under GST has taken a flat on rent for its employee for residency purpose whether from a registered person or from a unregistered person, the company will be liable to pay GST under reverse charge.

2) If the employee who is not registered under GST himself has taken a flat on rent for residency purpose whether from a registered person or from a unregistered person will be exempted from GST as the employee is not registered.

3) If a proprietor who is GST registered, has taken flat for his residence on rent, GST may not be payable on it under RCM as it is not for business purpose. Such issues need to be clarified by CBIC.

Arjuna (Fictional Character): Krishna, Whether ITC can be claimed?

Krishna (Fictional Character): Arjuna, ITC of RCM is available to the registered person as it is for furtherance of business in case of company who pay RCM on rent of residential property for employee, etc. if it is a part of obligation or contract on employer.

Arjuna (Fictional Character): Krishna, what should one learn from this?

Krishna (Fictional Character): Arjuna, Tenants who are registered under GST will now have to pay 18 per cent tax on rent for residency purpose. Also, Companies, trusts, institutions, etc who are registered under GST and have taken flats on rent for their employees and directors, have to pay GST on rent on reverse charge basis.