According to the GST Law, renting out an immovable property would be treated as a supply of services.
Renting of immovable property is divided in two parts:
Renting of commercial property
Renting of residential property
Renting of Commercial Property
Service by way of renting of commercial property is leviable to GST under Forward Charge Mechanism from the inception of GST Law. If the owner of the immovable property (hereinafter referred to as the “supplier”) is registered under GST, he would charge GST in Tax Invoice, otherwise, GST is not leviable. Thus, the question of Who is the service recipient? is irrelevant.
Renting of Residential Property
Renting of residential property was exempted vide Notification No. 12/2017 – Central Tax Dated 28th June, 2017, where the property is used for residence purpose, whether given to registered person or unregistered person.
However, the above mentioned exemption has been withdrawn w.e.f. 18th July, 2022 vide Notification No. 04/2022 – Central Tax Dated 13th July, 2022, with respect to renting of residential property for residence purpose to a registered person.
This means that w.e.f 18th July, 2022, if a residential property is given to registered person for residence purpose, GST is leviable.
Also, in this case, GST is leviable on Reverse Charge basis i.e., Recipient of service is required to pay the applicable Tax (18%) to the Government.
Central Tax Notification No. 05/2022 Dated 13th July, 2022, mandate the Reverse Charge applicability on service of renting of residential property to a registered person.
If a residential property is given to an unregistered person for residence purpose, the said service is still exempt under GST.
If the property is given to an unregistered person, but he uses it for business purpose, then the registered supplier should charge GST in his Tax Invoice under Forward Charge Mechanism since inception of GST Law.
If the registered person uses the property for residential purpose for it’s employees/Directors and charge the expenditure in its books of accounts, then also, he is liable to pay GST under RCM.
If the registered person uses the property for his own residential purpose, no liability/compliances for supplier and recipient both, provided, that rent is not claimed as expenditure in his books of accounts. (Otherwise, RCM applicable).
–Refer W.P.(C) 10986/2022 & CM APPL.32131/2022.
Renting of residential property will only be exempt from forward charge and reverse charge in the following cases:
Renting of residential property for residential use of an unregistered person; and,
Renting of residential property for own residential use by a registered person (provided, rent is not claimed as expenditure by the registered person in his books of accounts).