Property Owners And GST: Get All The Information You Need To Survive The Tax Regime

GST has transformed India into “One Nation, One Tax” for all.  The new GST Act has benefited a large number of property owners to stay away from the ambit of tax imposition.

Before GST, multiple taxes were applied to real estate including VAT, stamp duty charges, central excise, registration charges and service tax. After GST implementation, all of these charges have been clubbed into a single tax.

If you own a property or have rented it out for commercial, industrial or business purposes, you need to register under GST. Thus, property owners in India must understand the rules of GST and know their taxes.

Types Of Property Under The Tax Regime

Rented Property

Under GST, an immovable property when rented will be treated as a supply of services. The rent would be considered as a taxable supply of services.  Residential property rent is exempted from the GST tax regime.

But any type of lease agreement of renting out immovable property will fall under the ambit of the GST regime, even when a residential property is rented out for a commercial, industrial or business purpose.

The tax will be calculated on the taxable income from the rent. This tax will be binding for the service tax, which makes GST registration applicable to you.

Registered Charitable Trust Or Religious Institutions 

A registered charitable trust or religious institution will be exempt from the rented property tax regime if they are charging a minimum amount of rent as sanctioned by the GST regime:

  • Renting a room for less than Rs 1000 per day
  • Renting a community hall for less than Rs 10,000 per day
  • Renting a property for business purposes for less than Rs 10,000 per day

Real Estate

The GST on real estate for under-construction properties is 5%, reduced from the previous rate of 12%. This will increase the demand for property and also bring in more transparency for home buyers.

If you have booked your dream flat and made no payments, you can save money on tax as the cost of the apartment has already been fixed. The GST will be applicable to those instalments which are yet to be paid. It is worthwhile to note that GST does not apply to the sale of the property.

The Reverse Charge Mechanism (RCM) is followed in GST. This mechanism is applicable only on the services and does not apply to the sale or manufacturing of goods and services. Hence, if a person receives the services from an owner or supplier without GST registration, the receiving person will have to pay GST in reverse charge mechanism.

What Changed After GST Came In Picture? 

Pre-GST Regime

If you had a source of income from your rented property with annual income less than Rs 10 lakh, you were exempted from tax payment. If the taxable earnings from the rent surpassed Rs 10 lakh per annum, you had to get service tax registration at the rate of 15%.

Post-GST Implementation

This range has increased for your benefit! If your rental income from the rented property is below Rs 20 lakh, you will be exempted from paying any tax on the rental income.

In case your taxable rental income exceeds the amount of Rs 20 lakh per annum, you will have to pay tax on that amount. This service tax will be at the rate of 18%.

In terms of monthly calculation, If the monthly rent exceeds Rs 7500 per flat, tax is imposed. This payment is made to the Residential Welfare Association. The exemption from the maintenance charges is applicable only if your monthly rental does not exceed the amount of Rs 7500 per member.

If you possess more than one flat in the residential category, the minimum threshold range of income from rent will be applicable separately for every flat.

New GST Rates

Before GST, the residential real estate was exempted from any kind of tax imposition for the property owner. After February 2019, new GST rates have been issued for residential real estate:

  • Part of affordable housing society: The property will attract GST of 1% rate without Input Tax Credit (ITC)
  • Not part of affordable housing society: GST of 5% rate will be imposed without Input Tax Credit (ITC)

The gst rate list is issued for every domain at different rates considering the type of property and use.

Is Stamp Duty Also Removed? 

Stamp duty will be applicable on both completed properties and under-construction properties, even after the implementation of GST. The rate of stamp duty has consistently been reduced every year by different states.

Is TDS Applicable To GST? 

Until 2019, the rent payer was liable to deduct income tax at the rate of 10%, if the rent for the property leased exceeded Rs 1.80 lakh per annum. Now, the minimum rent amount liable for TDS has been increased from Rs 1.80 lakh to Rs 40 lakh for FY 2019-20.

GST will be applicable on the tax deducted at source (TDS). You will simply act as a collecting agent of GST for the government from the rent payer. TDS is applicable to commercial as well as residential property.

If you mention the service invoices separately in GST, then no tax will be deduced on TDS. This system was introduced for Double Taxation Avoidance in GST.

Benefits Of Paying Taxes Under GST

If you pay taxes on your rent under GST, you are accessing input tax credit (ITC). These input tax credits can be used to pay your other tax dues.

You can claim the ITC after paying taxes under GST if you satisfy the following conditions:

  • If you can provide the tax invoices for GST Deduction
  • If you have received the goods and service and are not exploiting it for personal use
  • If you have filed valid tax returns for the ITC
  • All due taxes are already paid via GST by the supplier

But bear in mind that ITC is not applicable on the supplies received for construction of the property.

Final Thoughts

With GST in motion, tax evasion has been reduced significantly. For property owners looking into ways to save on their investments, the cost of logistics will be reduced considerably.

The GST has proved to be a boon for property owners due to the increased range of taxable income. The transparency and accountability during gst payment have been increased appreciably, so make sure it benefits your property taxes.

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