Impact of GST on Rent: Provision for a Tax Deduction on Income Tax for Rented Property

As a small or medium business owner or start-up founder in India, it is essential to understand the impact of the Goods and Services Tax (GST) on various aspects of your business, including rental income. In this article, we will explore the provisions for tax deduction on income tax for rented properties, as well as the overall impact of GST on rent.

What is GST?

GST is a comprehensive indirect tax that was introduced in India in 2017. It replaced multiple indirect taxes such as VAT, service tax, and excise duty. GST is levied on the supply of goods and services and is applicable on both goods and services.

Impact of GST on Rent

Before GST, rent was subject to service tax at a rate of 15%. However, this changed after the introduction of GST. Now, the GST on rent is levied at 18% for commercial properties and 5% for residential properties. This has resulted in an increase in the overall cost of renting a property.

However, the good news is that GST paid on rent can be claimed as a tax deduction on income tax.

Provision for a Tax Deduction on Income Tax for Rented Properties

Under the Income Tax Act, if you are a salaried individual, you can claim a deduction for the rent paid. This deduction can be claimed under Section 80GG of the Income Tax Act. However, there are certain conditions that need to be fulfilled to claim this deduction:

You are a salaried individual who does not receive House Rent Allowance (HRA) from your employer
You or your spouse or minor child do not own a house property where you reside
You do not own a house property where you conduct your business or profession
You do not own any other house property that is deemed to be let out

If you meet the above conditions, you can claim a deduction for the rent paid up to a maximum of Rs. 5,000 per month or 25% of your total income, whichever is lower.

Additionally, if you are a business owner and you pay rent for your business premises, you can claim a deduction for the rent paid under Section 36(1)(iii) of the Income Tax Act. This deduction can be claimed as a business expense.

Conclusion

The impact of GST on rent has resulted in an increase in the overall cost of renting a property. However, the provision for tax deduction on income tax for rented properties has provided some relief to salaried individuals and business owners. If you meet the conditions mentioned above, you can claim a deduction for the rent paid and reduce your tax liability.