Who needs to pay 18% GST on house rent? Government clarifies on misleading reports

New Delhi: The Central government on Friday issued a clarification regarding GST on house rent, noting renting a residential unit is taxable only when it is given to a business or commercial entity.

A tenant, who is registered under the GST, is required to pay Goods and Services Tax at 18 per cent for renting a property, according to the new GST rules effective from July 18.

The government dismissed media reports which claimed that there is an 18 per cent Goods and Services Tax (GST) on house rent paid by tenants.

In a tweet, the government said GST would be levied only when the residential unit is rented out to a business entity.

"No GST when it is rented to private person for personal use. No GST even if proprietor or partner of firm rents residence for personal use," it said.

Claim: 18% GST on house rent for tenants #PibFactCheck



Renting of residential unit taxable only when it is rented to business entity

No GST when it is rented to private person for personal use

No GST even if proprietor or partner of firm rents residence for personal use pic.twitter.com/3ncVSjkKxP

— PIB Fact Check (@PIBFactCheck) August 12, 2022

Earlier, only commercial properties like offices or retail spaces given on rent or lease attracted GST. There was no GST on rent or lease of residential properties by corporate houses or individuals.

KPMG in India Partner Indirect Tax Abhishek Jain said the clarification provides relief to GST-registered proprietors or partners in GST-registered firms who take on rent immovable property for their personal use such as renting of a house for family accommodation.

GST registration

GST registration is needed when any person carries on business or profession and makes an annual turnover more than the threshold limit defined under the GST law.

The limit under GST law varies according to the nature and place of supply. The threshold limit for a registered person supplying services alone is ₹ 20 lakh in a financial year.

The limit for a supplier of only goods is ₹ 40 lakh. However, if the registered entity is located in any of the northeastern states or special category states, the threshold limit is ₹ 10 lakh per financial year.

Who will it impact

The new changes, implemented after the 47th meeting of the GST Council, will impact the companies and professionals who have taken residential properties on rent or lease.

The rent paid by companies towards the housing properties taken on rent to be used as guest houses or residences for employees will now attract 18 per cent GST. This will increase the employees' costs for the companies that are offering free accommodation to employees.