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Explanation of 18% GST on Residential Rent

  • Posted By SuperCA
  • On 27 July

Explanation of 18% GST on Residential Rent

The 47th GST Council Meeting marked several changes related to GST rates on the supply of goods and services. Following the meeting, the Union Finance Ministry issued a gazette of central tax notification wherein it brought residential rentals under the GST ambit from July 18th, 2022 onwards with immediate effect.

Before the 17th of July 2022, the GST was not applicable on residential rental property as it was under the GST Exempted Category. But as per the new notification, when a residential dwelling is given for rent to a person registered under GST, then it would be subjected to GST at the rate of 18%. Further, the GST has to be paid by the lessee to the credit of the Government under the reverse charge mechanism (RCM). Let’s understand Reverse Charge Mechanism first.

 

What is Reverse Charge Mechanism?

In GST, the supplier of goods and services is liable to pay the tax. But, when it comes to Reverse Charge Mechanism, the receiver of goods and services has to pay the tax, meaning that the tax liability is reversed. Reverse Charge means the liability to pay tax while GST return filing is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.

According to the normal procedure of filing returns, the supplier sells goods/services to the receiver and the latter pays the former for the same. This payment also includes GST, which the supplier then pays to the government. But, in the case of the Reverse Charge Mechanism, tax is paid by the receiver directly to the government; it does not go through the supplier and is not part of the exchange of goods/services.

The main purpose of the reverse charge mechanism is to collect indirect tax easily and conveniently from the recipient while GST returns filing so as to increase tax revenues more effectively in cases where the supplier of particular goods or services is situated in non-taxable territories or not well versed with the tax laws.

 

Impact of 18% GST on Residential Rent on Taxpayers

It should be clearly noted that no individual, who is living in a rented flat and does not have a registered GST number, will not have to pay 18% of GST on the same. Meaning, that a salaried family staying in a rented house need not be required to pay 18% GST on rentals to the government if he is not a registered person.

 

Impact on Normal taxpayers

When a company, LLP, Firm, AOP, etc. rents residential property for the purpose of housing staff then it will be regarded as a business expense. For this, GST will be paid using the reverse charge mechanism (RCM) and the taxpayers can claim Input Tax Credit through GST Return Filing.

 

Impact on Composition Taxpayers

A residential property that is rented for habitational purposes by a composition dealer who is GST-registered will be regarded as an item of a business expense. GST will be paid via RCM, however, as per section 10(4), a composition dealer will not be able to claim the input tax credit.

 

Changes in other GST Rates w.e.f 18.07.22

Description of goods or services earlier exempted/partially exempted

Old Rate

New Rate

Earlier fully exempted, now withdrawn

Maps and hydrographic or similar charts of all kinds, including atlases, wall maps, topographical plans and globes, printed

Nil

12%

Cheques, lose or in book form

Nil

18%

Parts of goods of heading 8801

Nil

18%

Air transportation of passengers to and from north-eastern states and Bagdogra is now restricted to economy class

Nil

Condition added

Transportation by rail or a vessel of railway equipment and material, storage or warehousing of commodities attracting tax such as copra, nuts, spices, jaggery, cotton, etc, fumigation in a warehouse of agri produce, services by RBI, IRDA, SEBI, FSSAI, and GSTN, renting of residential dwelling to GST-registered businesses, and services by the cord blood banks for preserving stem cells

Nil

Applicable rate

GST surcharge on room rent (excluding ICU) for hospitalized patients when those costs exceed Rs 5,000 per day.

Nil

5%

Common bio-medical waste treatment facilities for treating or disposing biomedical waste shall be taxed with availability of ITC, like CETPs

Nil

12%

Hotel lodging costs less than Rs 1,000 per day.

Nil

12%

Training or coaching in recreational activities on arts or culture, or sports other than by individuals

Nil

Applicable rate

Earlier partially exempted.

Petroleum/ Coal bed methane

5%

12%

e-Waste

5%

18%

Scientific and technical instruments for public-funded research institutes

5%

Applicable rate

 

Other Goods/Services attracting more GST

Description of goods or services

Old Rate

New Rate

Solar water heaters and systems

5%

12%

Prepared/ finished/chamois/ composition leathers

5%

12%

Job work in relation to -

Processing of hides, skins, leather/Making of leather products including footwear/Manufacturing of clay brick

5%

12%

Earthwork works contracts and subcontracts to the Central and state governments, Union Territories and local authorities

5%

12%

Pawan Chakki is an air-based atta chakki, wet grinder, cleaning, sorting, or grading machines for seeds and grain pulses, milling machines or cereal making machines, etc;

5%

18%

Drawing, printing, and writing Ink

12%

18%

Knives with cutting blades, Paper knives, Pencil sharpeners and blades therefor, Spoons, forks, ladles, skimmers, cake-servers etc

12%

18%

Power-driven pumps primarily designed for handling water such as centrifugal pumps, deep tube-well turbine pumps, submersible pumps; Bicycle pumps

12%

18%

Milking machines and dairy machinery, cleaning, sorting or grading machines and its parts for eggs, fruit or other agri produce

12%

18%

LED Lamps, lights and fixture, their metal printed circuits board;

12%

18%

Marking out and drawing instruments

12%

18%

Services by the foreman to chit fund

12%

18%

Works contract for railways, metro, roads, bridges, effluent treatment plant, crematorium, etc.

12%

18%

Works contract supplied to central and state governments, local authorities for historical monuments, canals, dams, pipelines, plants for water supply, educational institutions, hospitals etc. & sub-contractor thereof

12%

18%

Cut and Polished diamonds

0.25%

1.50%

Tetra Pack (Aseptic Packaging Paper)

12%

18%

Tar (From coal, or coal gasification plants, or producer gas plants and coke oven plants)

5%/18%

18%

 

What gets cheaper?

Import of tablets called Diethylcarbamazine (DEC) free of cost for National Filariasis Elimination Programme (IGST)

5%

Nil

Import of particular defense items by private businesses or suppliers for end-consumption of Defense (IGST)

Applicable rates

Nil

Ostomy Appliances

12%

5%

Orthopedic appliances such as intraocular lens, artificial parts of the body, splints and other fracture appliances, other appliances which are worn or carried, or body implants, to compensate for a defect or disability

12%

5%

Transport of goods and passengers by ropeways (with ITC of services)

18%

5%

Renting of truck or goods carriage including the fuel cost

18%

12%

 

 

Conclusion

The introduction of 18% GST on residential rentals will have a major impact on the homebuyer's sentiments. Now, any residential dwelling rented to a person registered under GST would attract a tax of 18%, as it would be treated as a supply of service. A range of items will now come under the purview of the Goods and Service Tax. The lessee who rents a home to use as a guest house, as a place to keep employees or directors, or both, would be taxed. However, if you are a salaried employee, and have taken a flat on rent then you don’t have to worry.

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