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February 20, 2023
By
Paramita

GST on Rent Compensation – Residential Property

As per the GST regime, renting of any immovable property is treated as a supply of services and is liable to be taxed. The GST Council has decided that if the monthly rent of a residential property is less than Rs. 7,500, no GST will be charged on the rent. However, if the rent exceeds Rs. 7,500 per month, the landlord will have to pay GST at the rate of 18% on the rent amount.

Let's understand how GST on rent compensation for residential property works in detail.

What is GST on Rent Compensation?

GST on Rent Compensation is the tax levied on the rent paid by a tenant to the landlord for residential property. The landlord is required to pay GST on rent compensation if the monthly rent exceeds Rs. 7,500. The GST rate on rent compensation is 18%, which means that the landlord has to pay 18% of the total rent amount as tax to the government.

Who is Liable to Pay GST on Rent Compensation?

The landlord is liable to pay GST on rent compensation if the monthly rent of his/her residential property exceeds Rs. 7,500. In case the landlord is not registered under GST, he/she needs to register under the composition scheme and pay tax at the rate of 1% on the total rent amount. However, if the landlord is already registered under GST, he/she needs to charge GST at the rate of 18% on the rent amount and pay the same to the government.

How to Calculate GST on Rent Compensation?

To calculate GST on rent compensation, the landlord needs to follow the below-mentioned steps:

1. Calculate the total rent amount charged to the tenant in a month.

2. Calculate the GST payable at the rate of 18% on the total rent amount.

3. Add the GST amount to the total rent amount to arrive at the final amount payable by the tenant.

Is GST Applicable on Rent Compensation for Commercial Property?

Yes, the GST is applicable on rent compensation for commercial property. The threshold limit for commercial property is Rs. 20 lakhs. If the annual rent received by the landlord for a commercial property is less than Rs. 20 lakhs, then he/she is not required to register under GST. However, if the annual rent received is more than Rs. 20 lakhs, then the landlord needs to register under GST and charge GST at the rate of 18% on the rent amount.

Conclusion

GST on rent compensation for residential property is a tax levied on the rent paid by a tenant to the landlord. The landlord is required to pay GST at the rate of 18% on the rent amount if the monthly rent exceeds Rs. 7,500. The GST amount needs to be added to the total rent amount charged to the tenant to arrive at the final amount payable. The landlord needs to register under GST if the annual rent received for commercial property exceeds Rs. 20 lakhs.

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