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Published on:
March 21, 2023
By
Harshini

GST Registration – Unregistered Rent Agreement – A statutory analysis

The Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services in India. GST registration is mandatory for businesses with an annual turnover of Rs. 20 lakhs or more (Rs. 10 lakhs or more for certain special category states). However, there is some confusion regarding the GST registration requirements for unregistered rent agreements.

As per the GST Act, the term "supply" includes all forms of supply of goods or services, including lease or tenancy agreements. Therefore, renting of immovable property is considered a supply of services and is subject to GST. As a result, the landlord is required to obtain GST registration if their aggregate turnover from renting of immovable property exceeds the threshold limit.

However, it is important to note that GST is not applicable on residential properties that are rented for residential purposes. Additionally, if the rent is less than Rs. 20,000 per month, the landlord is not required to obtain GST registration.

It is also worth noting that there are some exemptions available for GST on rent. For example, if the landlord is providing a hotel, inn, guest house, club or campsite accommodation, and the value of the services provided is less than Rs. 1,000 per day, then they are exempt from GST. Additionally, if the landlord is renting out their property to an educational institution, then the rental income is exempt from GST.

In the case of an unregistered rent agreement, the landlord cannot charge GST on the rent amount. However, they are also not eligible to claim any input tax credit on the expenses incurred in relation to the rented property. Therefore, it is advisable for landlords to obtain GST registration if their aggregate turnover from renting of immovable property exceeds the threshold limit.

Tax liability on the rent received from an unregistered rent agreement

Under GST, if the rental income is from a residential property, then it is exempt from GST. However, if the rental income is from a commercial property, then it is subject to GST.

If the rental income is from an unregistered rent agreement, the person receiving the rent will not be able to claim input tax credit (ITC) on the GST paid on any goods or services used to provide the rental service. They will also have to pay GST on the rental income without any exemption.

It is important to note that even if the rental income is exempt from GST, a person still needs to register for GST if their aggregate turnover exceeds the prescribed threshold limit.

Consequences of not registering for GST if my annual turnover exceeds the threshold limit

If your annual turnover exceeds the threshold limit of Rs. 20 lakhs (or Rs. 10 lakhs for special category states), you are required to register for GST. Failure to register for GST despite exceeding the threshold limit can have the following consequences:

1. Penalty: A person who is liable to register for GST but fails to do so is liable to pay a penalty of an amount equal to 10% of the tax due, subject to a minimum of Rs. 10,000.

2. Interest: The registered person may be required to pay interest on the amount of tax payable as per the provisions of the GST law.

3. Loss of Input Tax Credit (ITC): A person who is not registered under GST is not eligible to claim Input Tax Credit (ITC) on the GST paid on their purchases.

4. Inability to collect GST from customers: A person who is not registered under GST cannot collect GST from their customers. This can lead to higher costs for the person as they may not be able to recover the GST paid on their purchases.

5. Legal action: If a person fails to register for GST despite being liable to do so, the GST authorities can take legal action against them, which may include seizure of goods and assets and prosecution under the GST law.

It is important to note that the consequences of not registering for GST can be severe, and it is therefore advisable to register for GST as soon as the threshold limit is exceeded.

GST Registration – Unregistered Rent Agreement FAQs

1. Is it mandatory to register for GST if I have an unregistered rent agreement?

No, it is not mandatory to register for GST only because you have an unregistered rent agreement. GST registration is required only if your annual aggregate turnover exceeds the prescribed limit of Rs. 40 lakhs (for most states) or Rs. 20 lakhs (for some special category states).

2. What is the tax liability on the rent received from an unregistered rent agreement?

Rent received from an unregistered rent agreement is exempt from GST, as it is not considered as a supply of goods or services.

3. If I register for GST, do I need to charge GST on the rent received from an unregistered rent agreement?

No, you do not need to charge GST on the rent received from an unregistered rent agreement, as it is exempt from GST. However, if you are renting out a commercial property and the rent amount exceeds Rs. 20 lakhs per year, you need to register for GST and charge GST on the rent.

4. Can I claim input tax credit (ITC) on expenses related to the unregistered rent agreement?

No, you cannot claim input tax credit (ITC) on expenses related to the unregistered rent agreement, as the rent is exempt from GST.

5. What if I have multiple properties on rent under unregistered rent agreements?

If you have multiple properties on rent under unregistered rent agreements, the total annual rent received from all the properties would be considered for the threshold limit for GST registration.

6. Can I voluntarily register for GST even if my annual turnover is below the threshold limit?

Yes, you can voluntarily register for GST even if your annual turnover is below the threshold limit. This can help you claim input tax credit (ITC) on purchases, and also enable you to do business with other registered taxpayers who require GST registration for input tax credit (ITC) eligibility.

7. What are the consequences of not registering for GST if my annual turnover exceeds the threshold limit?

If your annual aggregate turnover exceeds the prescribed threshold limit for GST registration, you are liable to register for GST and pay the applicable GST on your supplies. Failure to register for GST can attract penalties, interest, and even prosecution under the GST law. It is, therefore, important to ensure that you register for GST in a timely manner, if required.

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