GST implication on rent of Immovable properties

Clipped from: https://taxguru.in/goods-and-service-tax/gst-implication-rent-immovable-properties.html

Time of Supply of Services U/S 13 of CGST Act, 2017

The time of supply of services shall be the earliest of the following-

1. Date of issue of invoice, if issued within specified time u/s 31(2) read with is days for relevant rules 30 days or 45 Insurance, Banking & NBFC from date of supply, or

2. Date of receipt of payment, or

3. Date of provision of service if invoice not issued within the specified time.

If time is not ascertainable from above, then the date on which the recipient shows receipt of services in his books of account.

Exception: If the supplier receives an amount up to Rs 1000/- over & above as indicated in the tax invoice then the time of supply shall be at the option of the supplier when he issues a subsequent invoice.

Note: The date of receipt of payment shall be the date on which payment is entered in the books of account or the date of credit into a bank account, whichever is earlier.

A registered taxable person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value, the tax charged thereon, and such other particulars as may be prescribed.

Sec 31(2) – Time limit for issuing tax invoices for services:

The invoice in case of a taxable supply of services shall be issued within a period of thirty days from the date of the supply of service.

Tax Invoice:

Under the GST regime, an “invoice” or “tax invoice” means the tax invoice referred to in section 31 of the CGST Act, 2017. This section mandates the issuance of an invoice or a bill of supply for every supply of goods or services or both.

Contents of Invoice –

There is no format prescribed for an invoice, however, Invoice rules make it mandatory for an invoice to have the following fields (only applicable fields are to be filled):

(a) Name, address, and GSTIN of the supplier;

(b) A consecutive serial number, in one or multiple series, containing alphabets or numerals or special characters hyphen or dash and slash symbolized as “-” and “/” respectively, and any combination thereof, unique for a financial year;

(c) Date of its issue;

(d) Name, address, and GSTIN or UIN, if registered, of the recipient;

(e) Name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered and where the value of taxable supply is fifty thousand rupees or more;

(f) HSN code of goods or Accounting Code of services;

(g) Description of goods or services;

(h) Quantity in case of goods and unit or Unique Quantity Code thereof;

(i) Total value of supply of goods or services or both;

(j) Taxable value of supply of goods or services or both taking into account discount or abatement, if any;

(k) Rate of tax (central tax, State tax, integrated tax, Union territory tax or cess);

(l) Amount of tax charged in respect of taxable goods or services (central tax, State tax, integrated tax, Union territory tax or cess);

(m) Place of supply along with the name of State, in case of a supply in the course of interstate trade or commerce;

(n) Address of delivery where the same is different from the place of supply;

(o) Whether the tax is payable on a reverse charge basis; and

(p) Signature or digital signature of the supplier or his authorized representative.

A signature or digital signature of the supplier or his authorized representative shall not be required in the case of issuance of an electronic invoice, bill of supply, ticket, or any such doc­ument in accordance with the provisions of the Information Technology Act, 2000.

Implication to be followed from 01st April 2021-

Meaning of Property-

GST law defines the term goods. It means:

“Every kind of movable property other than money and securities but includes actionable claim, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply”

It is clear from the above that Goods include both movable property and, an immovable property which is agreed to be cut off before supply under a contract

GST law does not provide a definition for immovable property. Therefore, a prevalent definition for the same has been extracted from Section 3(26) of the General Clauses Act, 1897:

“Immovable property includes land, benefits to arise out of land and things attached to the earth, or permanently fastened to anything attached to the earth.” 

GST on Rental Income-

Schedule II of CGST Act, 2017 states that renting of immovable property is a supply of service. Thus, renting a commercial or residential property would attract GST. Following are the rates and exemptions related to renting of immovable property:

SituationRates
Renting of a commercial Property 18%
Renting of a residential property for residential use Wholly exempt from tax as per notification no. 12/2017 Central Tax (Rate) dated 28.06.2017
 Renting of precincts of a religious place meant for general public owned and managed by a charitable trust or a religious trustConditions to be fulfilled:
Rent for rooms <Rs. 1,000/- per day
Rent for shops and other commercial spaces < Rs.10,000/- per month
Rent of community halls or open areas < Rs. 10,000/- per month 

Further, the service of renting an immovable property would attract GST only when the rent exceeds Rs. 20 lakhs for a given financial year. The place of supply for such service will be the location of immovable property irrespective of the place of supplier or receiver of service. In addition to this, if all the general conditions of input tax credit are fulfilled, there are no specific restrictions for availing the credit on rent paid for the person paying GST on rent.

Reduction in output tax liability Section 34 of CGST Act –(1) Where one or more tax invoices have been issued for the supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of the such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient a credit note containing such particulars as may be prescribed.

(2) Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:

Provided that no reduction in the output tax liability of the supplier shall be permitted if the incidence of tax and interest on such supply has been passed on to any other person.

Credit Notes under GST can be raised, if

  • The taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of the such supply
  • Goods supplied are returned by the recipient
  • Where goods or services or both supplied are found to be deficient

Generally, on non-receipt of payments, credit notes are being raised by taxpayers to avoid the incidence of tax. However, this needs to be seen very cautiously. There have to be supporting documents with every credit note to evidence the above reasons for raising a credit note to claim the benefit under Section 34.

What needs to be done if rent is not collected for the PY & credit note is not raised before September?

There is the possibility of a refund being claimed by the department. However, this possibility is only remote.

Conclusion :

After considering all the necessary acts and their related rules, we conclude that the rental income on commercial property is to be taxed @ 18%. Every month invoice is to be raised for all the rental income. All such income is to tax on an accrual basis under GST, irrespective of its receipt. On account, of non-receipt of such rent before the filing of the annual return or the month of September, whichever is earlier – a credit note needs to be raised. Reduction of liability can be done in the respective month’s return in which the credit note was raised.

Disclaimer: The Contents presented above are based on individual understanding of various contents of the Act and presented as a compilation for better understanding of the reader.

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