Not just kitchen budgets, new GST rules are all set to unsettle rentals, too. The Finance Ministry’s revenue department has introduced 18 per cent GST on residential rentals across the country, starting July 18. As per the notification, a residential dwelling rented to a person registered under GST would attract a tax of 18 per cent. Moreover, the lessee needs to pay the tax, keeping the lessor out of legal obligations.
Notably, any person who makes a supply of service over Rs 20 lakh and supply of goods over Rs 40 lakh would be liable for mandatory registration under the GST regime.
With this amendment, the lessee who takes a residential property on rent for the purpose of a guest house or for providing employees or directors would be subjected to tax. GST tax consultant Raveedaran Muthuswamy observed that an unintended outcome of this amendment is that an individual or proprietor, who is registered under GST, and has rented a residential property for personal use and not as a business expenditure, would also be subjected to tax. This requires the intervention of the government.
He further added that taxation on rents in a country like India, where the majority of people don’t have homes, has been a sensitive topic since the era of service tax. “Service tax was introduced on rents in 2007 only to the extent of commercial property. Residential property was excluded and was continued even on GST when it was introduced in 2017,” he recalled.
NAREDCO West’s Vice-President Hitesh Thakkar believes that this decision will have a major impact on homebuyers’ sentiment. Meanwhile, Anand Gupta, Chairperson of RERA Committee and chairman of the Builders of Association said that it is applicable for all residential units with registered GST numbers (with a turnover of Rs 20 lakh) under the Reverse Charge Mechanism. Small unit holders will remain unaffected. He said from the real estate point of view, this is a setback to the promotion of rental housing as a business.
