A tenant, who is registered under the GST, is required to pay Goods and Services Tax at 18 per cent for renting a residential property, according to the new GST rules that has become effective from July 18. 

The new changes, implemented after the 47th meeting of the GST Council, will impact the companies and professionals who have taken residential properties on rent or lease.

The rent paid by companies towards the housing properties taken on rent to be used as guest houses or residences for employees will now attract 18 per cent GST. 

This will indirectly increase the employees’ costs for the companies that are offering free accommodation to employees. 

However the 18 per cent tax on rent paid is only applicable to tenants registered under the GST.says Tax experts

“If any common salaried person has taken a residential house or flat on rent or lease, they do not have to pay GST.

However, a GST-registered person who carries out business or profession must incur 18 per cent GST on such rent paid to the owner,” explained Archit Gupta, founder and CEO at ClearTax.

Earlier, only commercial properties like offices or retail spaces given on rent or lease attracted GST.  But there was no GST on rent or lease of residential properties by corporate houses or individuals.

However as per the new rules, GST-registered tenants is also liable to pay the tax under the reverse charge mechanism (RCM). 

This means the tenant can claim the GST paid under Input Tax Credit as a deduction.

Under the reverse charge mechanism (RCM). tax will only apply when the tenant is registered under GST and liable to file GST returns. 

Therefore under the reverse charge mechanism (RCM) owner of the residential property is not liable to pay the GST.

Also a GST-registered person, who offers services from a rented residential property, will be liable to pay the tax at 18 per cent.

Under the GST law, registered persons include individuals and corporate entities. 

The GST registration is mandatory when a person carrying out business or profession reaches an annual turnover of more than the threshold limit.

The limit under the GST law varies according to the nature and place of supply. The threshold limit for a registered person supplying services alone is ₹ 20 lakh in a financial year.

The limit for a supplier of only goods is ₹ 40 lakh. However, if the registered entity is located in any of the northeastern states or special category states, the threshold limit is ₹ 10 lakh per financial year.