Goods and Services Tax (GST) has replaced the previous tax regime and has brought about significant changes in the Indian taxation system. Rental income from residential property is one such area where GST has a significant impact. In this article, we will discuss the GST implications on let out residential property in India in detail.
Under the GST regime, let out residential property is considered as a supply of services. Therefore, the owner of the residential property is required to pay GST on the rental income earned from the property. In general, the GST rate on rental income from residential property is 18%.
However, there are exceptions and scenarios where GST may not be applicable or may be applicable at a lower rate. Let's discuss each of these scenarios in detail.
If a residential property is rented out for commercial use, then it is considered as a supply of services and GST is applicable on the rental income earned from the property. In this case, the GST rate applicable will be the same as the commercial property's rate, which is 18%.
If a residential property is rented out for residential use, then it is considered as a supply of services and GST is applicable on the rental income earned from the property. In this case, the GST rate applicable will be 18% only if the monthly rental income exceeds Rs. 20,000. If the monthly rental income is less than Rs. 20,000, then GST is not applicable.
Under a Joint Development Agreement (JDA), the landowner provides the land to the developer, who constructs the residential property on the land. The landowner and the developer share the constructed property in a pre-decided ratio. In such a scenario, the landowner is required to pay GST on the share of the constructed property that is received by him.
The applicable GST rate on the residential property constructed under JDA is 18%. However, if the constructed property is sold after receiving the Occupation Certificate (OC), then the GST rate reduces to 5% without the Input Tax Credit (ITC) or 1% with ITC.
The maintenance charges collected by the residential society from its members are exempted from GST. However, if the society charges more than Rs. 7,500 per month per member, then GST is applicable at 18%. Moreover, if the society provides any other services such as renting the community hall or providing parking facilities, then GST is applicable as per the respective rates.
Lease agreements related to the residential property are also subject to GST. The GST rate applicable on lease agreements is 18%. The landlord or the tenant can bear the GST burden as per their mutual agreement. However, if the landlord bears the GST burden, then he can claim it as an Input Tax Credit (ITC).
In conclusion, GST has brought significant changes in the taxation system in India, including the tax implications on rental income from residential property. It is critical for small and medium business owners and startup founders to understand their GST obligations in this regard to avoid any penalty or legal repercussions.
By going through this comprehensive guide on GST on let out residential property in India, readers will have a better understanding of various scenarios and exceptions under GST laws for rental income, maintenance charges, and lease agreements.
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