The 47th GST Council meeting on Friday cleared a number of changes proposed earlier in the taxation regime. The tenants would have to pay 18 per cent GST on home rent under one of the proposals. The GST was applied to residential properties that were used for commercial purposes, like offices and shops. The tax must be paid on the rent of the property for any use.
All tenants are not bound to pay the tax, which will come into effect on July 18. As per the new rules, GST-registered tenants will have to pay tax. In a tweet, PIB said that renting of a residential unit is only taxable when it is rented to a business entity. A tweet said: No GST if it is rented to a private person for personal use, no GST even if the proprietor or partner of firm rents residence for personal use. GST will be charged on residential properties if they are rented or leased by a GST-registered person entity.
Most of the salaried class are not registered on the GST network, so that would exempt them. The yearly threshold for GST registration has been set by the Narendra Modi government to 20 lakh for service providers and 40 lakh for goods suppliers.
The GST-registered tenant will get the tax, not the owner, as a result of the new rule. The reverse charge mechanism has been called a reverse charge, where the onus to pay the tax lies with the recipient of the good or service, not the supplier of the service.
Who will pay and who won't pay?
Salaried people paying rent for residential properties won't pay any GST under the rule. If a GST-registered person takes a house or flat on rent or lease and carries out business, he or she will have to pay 18 per cent GST on the rent paid to the owner.
If both the landlord and tenant are unregistered under GST, the tax rules won't apply to the tenant. If the landlord is GST registered but the tenant is not listed, the transaction won't have the GST clause in it.