Impact of GST Rate on Commercial Property

After the implementation of the Goods and Services Tax (GST) across sectors in India, the impact on various sectors has been tremendous. One of the prominent sectors is GST rate on commercial property as well as residential ones.

Pre-GST period

The landlord was to obtain a service tax registration if the total taxable service including the rental income from all the properties exceeded Rs 10 lakh a year. Commercial properties that were let-out were to attract service tax even if a residential property was used for commercial purposes. The service tax was 15 per cent of the rent for commercial properties. The rental income from residential properties also didn’t attract service tax.

Post-GST period

According to GST Act, immovable property rent out would be treated as a supply of services. GST would be applicable for types of rent such as when a property is rented out or licensed to occupy or when a property is leased out including an industrial, commercial or residential property for a business.

Effect of GST on rent

When a residential property is rented out, it is exempt from GST. But any other type of leasing out or renting out would attract a GST of 18 per cent as it would be considered a supply of service.

From the threshold limit of Rs 10 lakh before GST, the limit has been increased to Rs 20 lakh which makes landlords at ease now of up to Rs 10 lakh.

If a taxpayer earns more than the exempted limit, then he/she will have to register under GST and pay taxes.

GST on commercial property in India is calculated at 18 per cent on the taxable value where rent would be treated as a taxable supply of service. But if it is a charitable trust or a religious organisation, it is free of GST. When the rent of rooms is less than Rs 1,000 per day, the rent of shops and other spaces for business is Rs 10,000 per month or the rent of open areas or community halls is Rs 10,000 per day.

Income tax credit when GST is charged on rent

If all the provisions to claim tax are fulfilled, then income tax credit can be claimed on GST on rent paid on commercial property.

Provision of tax deduction on income tax for rented property

The GST on rent on commercial property has to be collected from the person paying the rent to the owner of the property. On the GST on rental income from commercial property, 10 per cent income tax will be deducted at source. If the rent for property exceeds, Rs 1.80 lakh per year, then TDS is applicable both on commercial and residential properties. This means there will be no GST on TDS.

Under Reserve Charge Mechanism, GST rate on commercial property is charged for immovable properties by the local authority or government. The Government would itself deduct GST when the property is rented to an unregistered person.