Renting of immovable property shall be considered as a supply of services under GST regime.
Renting in common parlance means allowing, permitting or granting access to someone to have the use of a room or a property in return for payment.
As we further elaborate, “Immovable property” shall include land, benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to earth.
Renting has been defined as ‘‘allowing, permitting or granting access, entry, occupation, usage or any such facility, wholly or partly, to an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property’.
All types of renting services is not taxable. The following types of renting is not taxable under GST:
- renting of vacant land, with or without a structure incidental to its use, relating to agriculture.
- renting of residential dwelling for use as residence
- renting out of any property by the Reserve Bank of India
- renting out of any property by a Government or a local authority to a non-business entity.
Renting of all other immovable properties would be taxable unless covered by an exemption.
The following types of renting of immovable property are exempt from GST:
- Renting of precincts of a religious place meant for general public.
- Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below Rs.1000/- per day or equivalent.
- Renting to an exempt educational institution.
Renting of immovable property for commercial use is taxable @ 18%. GST is leviable only if aggregate turnover is more than 20 lakhs. It may be interesting to note that for the purpose of computing the aggregate limit of Rs 20 lakhs under the GST, all the taxable, as well as exempt goods and services supplied, shall be taken into account.
Under the GST, the value of all the service and goods supplied in India, as well as exported, whether taxable or exempt, are taken into consideration for the Rs 20 lakh limit. The GST is proposed to be levied at 18 per cent, on the letting-out of commercial properties.
The basic exemption limit is for intra state supply, so an assessee having interstate supply cannot avail the exemption and has to charge GST right from Rs. one. For renting service there would not be any inter state supply.
There is one more major tax implication under the GST, with respect to rent on commercial properties. The parliament has borrowed the concept of ‘reverse charge mechanism’ from the service tax regime, under the GST. A person who is registered under GST, who gets supplies of goods or services from a person who is not registered under GST, will have to pay the GST under the reverse charge mechanism. The proposed GST provisions, due to the increased rate and the levy under the reverse mechanism, will eventually make it costlier to take any commercial premises on rent.