GST Impact on Rental Income of a Residential House Property has given to a registered person (Under GST) under GST Law w.e.f. 18.07.2022.

The GST Council made recommendation to the Government to impose GST on ‘a person has given residential property to the registered person (GST Registered Person) to renting of residential dwellings (Living) with effect from 18.07.2022 in it’s 47’th meeting  at Chandigrah on 28th &29th of June’2022.

Prior to 18.07.2022, A person has given a residential property for residential purpose (Other than Commercial purpose) is exempted from GST Tax as per Notification No.12/2017-C.T. Dated.28.06.2017. Now as per 47th  GST Council recommendations, CBIC has given Notification No.4/2022- Central Tax (Rate),Dated.13.07.2022 withdrawn such exemptions.

Now onwards, as per Notification No. 05/2022-Central Tax Rate) dated. 18.07.2022, a unregistered person(Not registered under GST) has given the residential house property rented out to a registered person (Registered under GST ) is liable to pay  GST under Reverse Charge Mechanism by the Tenant.

If a residential property owner (Landlord) is unregistered under GST Law, he has given such residential property to a registered person (Registered under GST Law), for use the purpose of residential under that circumstance, Tenant is liable to pay GST tax @18% under Reverse Charge Mechanism (RCM) as per Notification No. 05/2022-Central Tax Rate) dated. 18.07.2022.

Example-1:

When a company takes a residential house property for use of residence on rent for employees if will be considered as an item of business expenditure. GST Tax will be paid @18% under RCM and eligible to claim Input Tax Credit by the company.

Example.2:

When a person is having GST registration under Composition Scheme, takes a residential house property for the purpose of residence on rent then it will be considered as an item of business expenditure. GST Tax will be paid under RCM but not eligible to claim input tax credit as per Section 10(4) by a composition dealer.

Example.3:

When an individual who is registered taxpayer under GST Law,2017, as a proprietary concern, takes a residential house property for the purpose of residence on rent for him or her or family then it will be considered as an item of personal expenditure and not the business expenditure of a proprietary concern . GST tax will be paid under RCM but the ITC of the GST tax paid under RCM be claimed as it is blocked as per Section 17(1) of the CGST Act,2017.

Example.4:

When a company, registered under GST Law and take a residential property on rent for one of its director for residential purposes, then such company have  to pay GST Tax @18% under RCM as per Notification No. 05/2022-Central Tax Rate) dated. 18.07.2022 and thereafter, claim input tax credit (ITC) on the same.

Example.5:

A unregistered person (Un-registered under GST) has given a residential house property to a unregistered person (Un-registered under GST) on monthly basis for use for residential purpose, under that circumstances TENAT is not liable to pay GST. Because it is exempted as per Notification No.12/ 2017- C.T. Dated. 28.06.2017.

Disclaimer: The contents of this article have been prepared on the basis of Press Release by the GST Council issued on the 28’th & 29’th, June’2022 and Notification No.04/2022,Central Tax (Rate), dated.13.07.2022 and Notification No.05/2022-Central Tax ,Rate) dated.18.07.2022 issued by the CBIC. Although care has been taken to ensure the accuracy, completeness and reliability of the information available, the author assumes no liability.  Therefore, users of this information are expected to refer the relevant law, the information as given in no case shall be constructed as a professional advice or opinion.

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28 Comments

  1. PH Lad says:

    we have regsitered co at Vapi. we will have rental premises for residential property at mumbai for director. RCM is payable By our company. but we dont have Gst Registration at mumbai. we have only ISD regsitration in mumbai where rcm not apllicable so need to take nee reistration at Mumbai for discharge of RCM and Itc avaialbelr at Mumbai???

  2. Ankit says:

    Dear Sir
    My partnership firm has rented a godown from landlord (unregistered) in a property where the landlord lives on the first floor and the godown is on ground floor.
    Ground floor has commercial electric connection and commercial holding tax is paid to muncipality by landlord. So will it be considered as commercial property?
    Also, is RCM applicable on commercial property taken for commercial purpose from unregistered person?
    please suggest..

  3. Ajith says:

    Whether a commercial building taken for lease for business purpose and a part of this ( Top floor of the building) building used for residential purpose. we have made separate Rent agreement for both Shop and Residence and also collect separate invoices for the same. in this scenario, my question is whether RCM is applicable for Residential part, if it is a commercial building. The Building number is same for shop and Residence are of the building. Please give us a clarification.

    1. B.S.seethapathi Rao says:

      Dear Sir,I have referred your query and here with I am providing my opinion. If you have separate agreement for residential property for residential purpose. On 17.8.2022,The CBIC has clarified that “renting of residential unit taxable only when it is rented to business entity️.” It further clarified that “no GST when it is rented to private person for personal use; no GST even if proprietor or partner of firm rents residence for personal use.” .But agreement entered by the Company and rent paid from the books of company, under that circumstance liable to pay GST under RCM and liable to claim ITC subject to condition Sec.17(5) of the CGST Act,2017. This is my person opinion.

  4. Anil Gidwani says:

    In case the landlord has his property in Mumbai and is unregistered individual and the tenant registered wit GST Department in Gujarat, then in such case, is the tenant required to take GST registration in the state of Maharashtra for making payment of GST on RCM basis.

  5. Mainuddin Dagli says:

    In continuation of Example 4, if the registered person recover the amount of rent from Director’s Salary, then is there by any chance possible that the registered person will not pay the GST as it is not bearing the cost of rent. However the agreement is between Registered person and owner of the property.

    Is ther any supporting documents regarding this (some circular or judgements)

    1. B.S.Seethapathi Rao says:

      Dear Sir, with regards your quesry, Registered company entered contract with unregistered house owner and paid rent from the company’s account, under that circumstances registered company liable to pay GST under RCM, with regards to ITC subject to Sec 17(5) of the CGST Act,2017.

  6. mitesh says:

    If commercial property is taken on rent by GST registered company from un-registered person. whether registered company have to pay GST under RCM or not ? and if yes can registered company can claim GST credit.?

    1. B.S.Seethapathi Rao says:

      Dear Sir, with regards to your quesry, you have to pay GST under RCM. with regards to ITC, subject to condition 17(5) of CGST Act,2017.

      1. mitesh says:

        Thanks sir for your reply.
        Please advise , If we take land (open space) on rent for keeping raw material from unregistered land owner / farmers. Will it fall under RCM as per the new rule.

        1. B.S.Seethapathi Rao says:

          Dear Sir, I have referred your query. In this regard my opinion is you are liable to pay GST under RCM on vacant land taken for material storage purpose.(In the course of business) and eligible to claim ITC.

  7. Vinay Narang says:

    Hi… I am an independent Design Consultant.
    I have rented an apartment in Pune for my place of stay. I provide Design Consultancy Services in Nashik & Pune. My Registered business address is in Nashik.

    Having myself as a proprietor/self -employed, I have took GST in my name which is linked to my PAN Card.

    My owner is not registered under GST.

    Would like to understand will I still be liable to pay GST on rent, as the leave & license agreement clearly have a clause it is a property for residential use only. I don’t carry out any kind of business/service from there.

    Please guide.

    Thanks

    1. B.S.Seethapathi Rao says:

      You are liable to GST under RCM but the ITC of the GST paid under RCM be claimed as it is blocked as per Section 17(1) of the CGST Act,2017.

  8. Hakim Insaf says:

    Good and informative article sir.
    I have one query.In case of a Registered company taking residential property for director /Employee and paying GST under RCM, you wrote in your article that ITC can be claimed. Its your opinion or supported by any circular/FAQ etc

  9. Naitik Mehta says:

    If landlord (Partner of firm) registered under GST rents out residential unit to partnership firm which is also registered under GST, whether GST under RCM is payable by Partnership firm ? If GST is payable under RCM, whether Partnership firm is entitled to take ITC of the GST paid under RCM ?

    1. B.S.Seethapathi Rao says:

      Dear Sir, I have referred your query, If landlord (Partner of firm) registered under GST rents out residential unit to partnership firm which is also registered under GST, whether GST under RCM is payable by Partnership firm ?
      As per N.NO.5/2022-Central Tax (Rate)dt.13.07.2022, Tenant is liable to pay under RCM,so, Firm has to pay GST under RCM,
      If GST is payable under RCM, whether Partnership firm is entitled to take ITC of the GST paid under RCM ?
      In this regard , we have to refer terms of the firm. If as per terms of contract, under that circumstance we have to refer Sec.16 & 17 of GST CAt.

  10. RICHANK MALHOTRA says:

    Dear Sir,
    My question is : In case of partnership firm who is registered under GST in Delhi having only two partners. And both the partners are Husband & wife. Now they are living in a rented property in Noida (U.P) and landlord is un-registered person.
    Rent agreement is in the name of the partner and he is paying rent.
    In this case Partnership firm has to pay GST under RCM?

    1. B.S.Seethapathi Rao says:

      Dear Sir, I have referred your query. In this scenario, Here we have to refer whether such rental payment booked in Firm books as business expenditure or partner (Husband) personal account as rent paid in the capacity partnet of firm or partner’s individual account. If rent booked in the firm account, firm is liable to pay GST under RCM , or If rent booked in the name of the partner (Husband) personal account , husband is liable to pay GST under RCM.

  11. Vaidya Kiran says:

    If a residential property owner (Landlord) is unregistered under GST Law, he has given such residential property to a registered person (Registered under GST Law), for use the purpose of Commercial purpose under that circumstance, Tenant is liable to pay? GST tax @18% under Reverse Charge Mechanism (RCM)

  12. Kiran says:

    If a residential property owner (Landlord) is unregistered under GST Law, he has given such residential property to a registered person (Registered under GST Law), for use the purpose of Commercial purpose under that circumstance, Tenant is liable to pay? GST tax @18% under Reverse Charge Mechanism (RCM)

  13. Sham Sunder Gupta says:

    Sir, Please clarify Example 3. “GST tax will be paid under RCM but the ITC of the GST tax paid under RCM be claimed as it is blocked as per Section 17(1) of the CGST Act,2017.”
    Further, in case a commercial property is taken on rent by GST registered from un-registered person. Is tenant required to deposit GST on rent paid under RCM, in such case. Is there any monetary limit for non payment of GST on rent under RCM?

  14. Arun Jain says:

    What if i am having GST REgistration (Proprietorship) and reside in residential property on Rent. But i am also director of a Pvt Ltd. Company ( which is also GST Registered) Where i should pay GST under RCM under Proprietorship or Pvt Ltd. Company? Or if it is now business expenditure, cant i claim HRA exemption?

    1. B.S.Seethapathi Rao says:

      Sir, Thank you to refer my article, with regards to your queries:- (1).f i am having GST REgistration (Proprietorship) and reside in residential property on Rent. (2).But i am also director of a Pvt Ltd. Company ( which is also GST Registered). In your case , you are not inform about who will pay your residential rent to the house owner, and where you have to book such rent as expenditure. So. in my understanding, If you have to book such rent in your proprietory business books of accounts, You have to pay GST Tax under RCM and pass necessary enteries in the books of accounts or If such rent paid by the Company as per terms and ocnditions of the company and company book such rent as business expenditure, company will pay GST under RCM.

  15. Mayur says:

    if a GST registered person has let out a residential property to an unregistered person for residential purpose, what will be GST Impact?

    1. B.S.Seethapathi Rao says:

      Dear Sir, thank you to refer my article, In your case House Ower is having GST registration and tenent is not a registered person, Under that circumstances,tenant is not liable to pay GST becasue he is a unregistered person.. House owner is also not liable to pay GST . It is exempted underN.No.12/2017 dt.28.06.2017.

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