Understanding the Impact of GST on Rental Income in India

Rental income plays a vital role in the financial landscape of many individuals in India, serving as a significant source of earnings. The introduction and implementation of Goods & Services Tax (GST) have brought about critical changes in the dynamics of the landlord-tenant relationship, particularly in terms of taxability. Property owners, leasers, and tenants alike are experiencing a shift in how taxes are calculated on rental revenue. This article thoroughly explains the implications of GST on rent and explores various aspects that both parties involved should consider.

The Pre-GST Era

In the pre-GST era, rental income from real estate investments was liable to income tax under the category of 'Income from House Property' in specific circumstances. Additionally, properties that were rented out were subject to service tax. Landlords were required to register for service tax if the total value of their taxable services, including rental income from all properties, exceeded ₹10 lakh annually. Commercial properties for rent were also subject to service tax, irrespective of whether they were used for business purposes. Rental income from residential homes, however, was exempt from service tax.

Changes Under GST

Under the GST regime, the tax on goods and services is consolidated, eliminating the ambiguity regarding the imposition of distinct taxes. The threshold amount for GST application has been raised from ₹10 lakh to ₹20 lakh. Consequently, many landlords who were previously subject to service tax will no longer be liable for indirect taxes.

Impact on Rental Income

The impact of GST on rental income varies depending on whether the property is rented for residential or commercial purposes. Business owners who pay rent as an essential expense must understand if they qualify for input tax credit (ITC) on the GST paid for rental expenses. There are various intricacies to consider, both for renters and property owners, regarding the taxation of rental income.

ITC Claim Under GST on Rent Paid

Under GST, the individual who pays GST on rent can claim a credit against other tax obligations. Input Tax Credit can be claimed on GST paid for rent if all the requirements for claiming it are met. This provision allows for the offsetting of GST paid on rent against the total tax liability.

GST Registration for Parties

Taxpayers earning above the exempt threshold must register for GST and fulfill their tax obligations. If the property is rented for business purposes, including rent and other exempted income, the landlord must register for GST if the annual business income exceeds ₹20 lakh. The threshold for service providers, apart from special category states, remains at ₹10 lakh. This change in threshold brings relief to landlords who were previously subject to the Service Tax regime.

GST on Rental Housing

The 48th GST Council meeting clarified that no GST is applicable when a residential dwelling is rented to a registered person for personal use as their own residence. This means that if a registered individual rents a residential property for personal use, rather than in a business capacity, no GST is levied.

AURUM instaHome to the Rescue:

AURUM instaHome provides an invaluable online property valuation tool that can streamline the renting process. With AURUM instaHome, property owners can benefit from accurate online property valuation and guidance, ensuring a smooth and efficient business operation.

By leveraging AURUM instaHome's online property valuation tool, landlords can enhance their rental income earning experience, ensuring compliance and maximizing the benefits of being a property owner. As the rental market continues to evolve, AURUM instaHome offers valuable support to property owners, streamlining their operations in the ever-changing landscape of real estate.