Goods and Services Tax or GST is a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods, as well as the provision of services. GST is a destination-based tax, which means that the tax is levied on the final consumer of goods or services. Rental income is also subject to GST in India.
Rental income is the income received by an individual or a company for allowing the use of their property to another party. The property can be residential, commercial, or industrial. Rental income is taxed under the head “Income from House Property” in the Income Tax Act, 1961.
As per the GST Act, any supply of goods or services or both made for a consideration in the course or furtherance of business is liable to GST. Hence, if a person is renting out a property in the course or furtherance of their business, then GST is applicable on the rental income received. The person is required to register for GST if the aggregate turnover exceeds Rs. 20 lakhs (Rs. 10 lakhs for special category states) in a financial year.
The GST rate on rental income is 18%. However, if the property is used for residential purposes, then the GST rate is nil. It is important to note that if the property is used for both residential and commercial purposes, then the GST rate will be applicable only on the commercial portion of the property.
The calculation of GST on rental income is based on the rent amount charged by the landlord. The GST amount will be calculated as follows:
GST amount = Rent amount x 18% (if applicable)
Input tax credit (ITC) can be claimed by the landlord on the GST paid on the rent amount. However, ITC can be claimed only if the rental income is used for the course or furtherance of business. If the rental income is used for personal purposes, then ITC cannot be claimed.
Any person who is renting out a property in the course or furtherance of their business is required to register for GST. The registration process is simple and can be done online through the GST portal. The person is required to provide their basic details such as name, PAN, address, and bank account details. Once the registration is done, the person will be provided with a unique GSTIN (Goods and Services Tax Identification Number).
Once registered, the person is required to file regular GST returns. The GST returns need to be filed monthly, quarterly, or annually based on the turnover. The person needs to provide the details of the rental income received and the GST paid on the same in the returns.
In conclusion, GST is applicable on rental income received by individuals or companies if the rental income is received in the course or furtherance of their business. The GST rate applicable is 18% (nil if the property is used for residential purposes). Input tax credit can be claimed on the GST paid on the rent amount if the rental income is used for the course or furtherance of business. Registration and filing of GST returns are mandatory for persons renting out properties in the course or furtherance of business.
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