Clipped from: https://taxguru.in/goods-and-service-tax/faqs-gst-renting-immovable-property-residential-commercial.html
Under the CGST Act, renting of immovable property is treated as a supply of service and is generally taxable unless specifically exempted. Renting of residential dwellings for use as residence is exempt under Notification No. 12/2017 (CTR) and 9/2017 (ITR), but this exemption does not apply when the property is rented to a registered person, except where a proprietor rents it in personal capacity for residence. Renting for commercial use or business purposes is taxable. Services related to religious activities and renting of religious premises are exempt subject to specified monetary thresholds. Reverse Charge Mechanism (RCM) applies in specific cases, such as renting of residential dwellings to registered persons and renting of commercial property by unregistered persons to registered persons. Commercial property renting is generally taxable, either under Forward Charge or RCM depending on supplier and recipient status, with a limited exemption for composition taxpayers from 16.01.2025. Overall, GST applicability depends on usage, registration status, and applicable exemptions.
Question: Whether GST is applicable on renting of immovable property under the CGST Act?
Answer: Yes, GST is applicable on renting of immovable property. As per Section 7 of the CGST Act, GST is levied on the supply of goods or services unless specifically exempted under Section 11 through notifications. Renting of immovable property is treated as a supply of service under Section 7 read with Schedule II of the CGST Act. Therefore, it is taxable under GST unless covered by any specific exemption.
Question: By which notification has the Government provided exemption in respect of renting of residential dwelling under GST?
Answer: The Government has issued Notification No. 12/2017 – Central Tax (Rate) under the CGST Act and Notification No. 9/2017 – Integrated Tax (Rate) under the IGST Act to grant exemptions to various categories of services. In this regard, Entry No. 12 of Notification No. 12/2017 – CTR and Entry No. 13 of Notification No. 9/2017 – ITR specifically provide exemption for services by way of renting of residential dwelling, subject to prescribed conditions.
Question: Whether renting of residential dwelling is exempt from GST?
Answer: As per Entry No. 12,services by way of renting of residential dwelling for use as residence are generally exempt from GST. However, this exemption is not available where the residential dwelling is rented to a registered person.
Explanation: The exemption shall still be available in cases where the residential dwelling is rented to a registered person, provided that:
- The registered person is a proprietor of a proprietorship concern and takes the residential dwelling in his personal capacity for use as his own residence; and
- Such renting is on his own account and not on account of the proprietorship concern.
In such cases, the transaction will continue to qualify for exemption under the notification.
Example 1 (Exempt): Mr. A (an individual) takes a flat on rent for his personal residence from Mr. B. Since the property is used for residential purposes, the service is exempt from GST.
Example 2 (Taxable): ABC Pvt. Ltd. (a registered company) takes a residential flat on rent to provide accommodation to its employees. Since the property is rented to a registered person (company), the exemption is not available, and GST is applicable.
Example 3 (Exempt – Special Case): Mr. X is a proprietor of a registered business. He rents a house in his personal name and uses it as his residence. Even though he is a registered person, the exemption is available, because:
- He rented it in personal capacity, and
- It is not for business use.
Example 4 (Taxable): Mr. Y, a proprietor, rents a residential property in the name of his business and uses it as a guest house for clients. This is considered renting to a registered person for business purposes, so GST is applicable.
Example 5 (Exempt): A landlord rents a residential house to an unregistered individual who uses it for living. Fully exempt from GST.
GST Exemption Decision Tree – Renting of Residential Dwelling
Step 1: Is the property a Residential Dwelling?
- No → GST Applicable
- Yes → Go to Step 2
Step 2: Is it used for Residential Purpose?
- No (office / guest house / commercial use) → GST Applicable
- Yes → Go to Step 3
Step 3: Is the tenant a Registered Person under GST?
- No → Exempt from GST
- Yes → Go to Step 4
Step 4 (Special Case Check): Is the tenant a Proprietor renting in personal capacity?
- No → GST Applicable
- Yes → Go to Step 5
Step 5: Is the property:
- Taken in personal name
- Used as own residence
- Not for business purposes
If ALL → Exempt from GST
If ANY → GST Applicable
Question: Whether services relating to religious activities and renting of religious premises are exempt under GST?
Answer: Yes, as per Entry No. 13 of Notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017, services by way of conduct of religious ceremonies and renting of precincts of a religious place meant for the general public (owned or managed by specified charitable or religious trusts) are exempt under GST. However, this exemption is not available where:
- Room rent is ₹1,000 or more per day,
- Renting of halls/open areas is ₹10,000 or more per day, or
- Renting of shops/commercial spaces is ₹10,000 or more per month.
In such cases, GST becomes applicable.
Question: Is renting of commercial property taxable under GST?
Answer: Yes, renting of commercial property is generally taxable under GST, subject to certain exceptions (e.g., composition taxpayers under RCM exemption from 16.01.2025). The taxability depends on the status of the supplier and the recipient, i.e., whether tax is payable under the Forward Charge Mechanism or the Reverse Charge Mechanism.
Question: By which notification has the Government provided for Reverse Charge Mechanism on renting of residential dwelling and commercial property under GST?
Answer: The Government has prescribed the Reverse Charge Mechanism through Notification No. 13/2017 – Central Tax (Rate) under the CGST Act and Notification No. 10/2017 – Integrated Tax (Rate) under the IGST Act. These notifications cover RCM applicability on specified services (Entry No. 5A, 5AA and 5AB), including renting of residential dwelling and renting of commercial property (as amended from time to time), subject to prescribed conditions.
Question: What are the relevant entries under RCM for renting services under GST?
Answer: The following entries under Reverse Charge Mechanism are relevant for renting services:
- Entry 5A:Covers renting of property by the Government or local authority to registered persons, taxable under RCM.
- Entry 5AA (introduced in 2022):Covers renting of residential dwellings to registered persons, taxable under RCM.
- Entry 5AB (introduced in 2024):Covers renting of commercial property by unregistered persons to registered persons, taxable under RCM. However, services provided to persons registered under the Composition Scheme are exempt from 2025 onwards.
Question: What is the GST applicability on renting of commercial property under different scenarios?
Answer: Renting of commercial property is generally taxable under GST, subject to certain exceptions (e.g., composition taxpayers under RCM exemption from 16.01.2025). The taxability depends on the status of the supplier and recipient:
- If the supplier is registered, GST is payable under the Forward Charge Mechanism.
- If the supplier is unregistered and the recipient is registered, GST is payable by the recipient under the Reverse Charge Mechanism.
- However, where the recipient is registered under the Composition Scheme, GST is not applicable from 16.01.2025 onwards as per the applicable exemption.
Question: What is the current GST position on renting of residential dwellings and commercial property?
Answer: Under the current GST provisions:
1. Renting of residential dwellings:
-
- When rented to unregistered persons for residential use, it is exempt from GST.
- When rented to registered persons, it is taxable under Reverse Charge Mechanism (RCM), except where it is used for personal purposes by an individual/proprietor and not recorded in business accounts.
2. Renting of commercial property:
-
- It is always taxable under GST.
- It is taxed under Forward Charge Mechanism (FCM)if the supplier is registered, and under RCM if the supplier is unregistered and the recipient is registered.
- However, an exception exists where the recipient is under the Composition Scheme, in which case it is exempt from 16.01.2025 onwards.
Examples – Renting of Residential Dwellings:
Example 6 (Exempt): Mr. A rents his house to Mr. B (an individual, unregistered) for residential use. GST is not applicable (exempt supply).
Example 7 (RCM applicable): Mr. A rents a residential flat to XYZ Pvt. Ltd. (registered company) for use as guest accommodation. GST is payable by XYZ Pvt. Ltd. under RCM.
Example 8 (Exception – No GST): Mr. A rents a house to Mr. C (a proprietor, registered), but the rent is paid for personal use and not recorded in business books. GST is not applicable.
Examples – Renting of Commercial Property:
Example 9 (FCM applicable): Mr. A (registered) rents a shop to XYZ Ltd. (registered). GST is payable by Mr. A under FCM.
Example 10 (RCM applicable): Mr. A (unregistered) rents an office space to XYZ Ltd. (registered). GST is payable by XYZ Ltd. under RCM.
Example 11 (Exempt – Composition Scheme): Mr. A (unregistered) rents a shop to Mr. B, who is registered under the Composition Scheme (after 16.01.2025). GST is not applicable.
Example 12 (Unregistered to Unregistered): Mr. A (unregistered) rents a shop to Mr. B (unregistered). GST is not applicable.
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