August 18, 2022

PTI Fact Check: Viral posts of 18% GST on house rent for all tenants are misleading

New Delhi, Aug 18 (PTI Fact Check) Many social media users have shared posts claiming that the central government has imposed a new Goods and Services Tax (GST) rate of 18% on house rent paid by all those people who live in rented houses. The PTI Fact Check Desk has found in its investigation that not all tenants need to pay 18% GST for renting a residential property. The new rule, effective July 18, 2022, applies only to tenants registered with the GST system. The viral social media posts are misleading.

Claim

Social media platforms such as Twitter and Facebook have been flooded with claims that all the people who have leased houses for residential purposes will be liable to pay 18% GST on the rent they pay.  One user, Munmun Sahani, published a Twitter post, "Your house rent will now go up by 18%.  Modi govt will now be charging GST to tenants on their house rent." The tweet can be seen here

Several other Twitter users posted similar claims. Their posts can be seen here, here, and here also.

Investigation

Since the viral claim was related to an important decision by the government of India, the PTI Fact Check Desk decided to do a simple Google Search with the keyword '18% GST on house rent' to see if any news report was available on the same over the Internet. During the Google search, the Desk found many articles with the facts of the claim that had gone viral. 

The Desk came across an explainer article published by the FirstPost website on August 12 with the headline - 'Now 18% GST on house rent: Do all tenants need to shell out more?'  The article, under the sub-heading 'What's this new rule?', said: "A tenant is required to pay 18% GST on the rented residential property effective from July 18, as per the recommendations of the 47th GST Council meeting.  It is only applicable to tenants registered with the GST system."

The report quoted another report by NDTV saying, "Earlier only commercial establishments like offices or retail shops given on lease attracted GST.  There was no GST on renting or leasing residential properties by corporate houses or individuals."

Now, the question arises about who must be registered under the GST system. The FirstPost report can be seen here.

According to reports on multiple news websites, a registered person could be an individual or a corporate entity under the GST law.  The GST registration is necessary if the business has a yearly turnover above the threshold limit, which is described below -

A.  The threshold limit for a registered person or entity supplying services is Rs 20 lakh.  

B.  The threshold limit for a registered person or entity for the supplier of goods is 40 lakhs.  

C.  Also, if the registered person or entity is located in the northeastern or particular category states, the threshold limit is Rs 10 lakh.

As per the report, the new rules apply to GST-registered persons or entities who offer their services from rented residential properties.  It will also impact corporates and taxpayers who have rented out houses or flats for their employees.  

Another report in the Mint quoted Archit Gupta (Founder and CEO of Clear Tax) saying: "The 18% GST will not apply to a salaried individuals who have leased an apartment.  If any common salaried person has taken a residential house or flat on rent or lease, they do not have to pay GST." The News article by the Mint can be seen here.

Other news websites also posted articles saying the 18% GST on the residential property's rental income is not for everyone.  The reports can be seen here, here and here also.

In the next part of the investigation, the Desk contacted Aseem Chawla, an expert on international taxation mandates and taxation structuring related to both inbound and outbound investments.

Chawla said: "A new condition has been added to the exemption notification for residential rentals, whereby apart from the nature of dwelling and 'end-use' conditions that existed earlier, exemption from GST is not available where the residential dwelling is rented to a registered person." 

He also said, "Such residential rental services which are not covered under the exemption notification are now taxed at 18%, and under the reverse charge mechanism, the liability in the hands of the recipient/tenant would arise. Services by renting residential dwellings for use as a residence would be exempted only if the service is provided to the unregistered recipient. In other words, GST will be applicable if the residential dwelling is rented out to a registered person whether for residential purposes or otherwise, with effect from 18.07.2022."

Chawla quoted a recent judgment passed by the Hon'ble High Court of Karnataka in February 2022 in the case of Taghar Vasudeva Ambrish v. Appellate Authority for Advance Ruling [2022] 91 GST 750 (Kar.). In the court's judgment, it was held inter-alia that the exemption notification does not require the lessee to use the premises as a residence. Hence, the service remains exempt as long as the dual conditions of a residential dwelling and end-use for residential purposes are fulfilled.


Claim
All tenants are required to pay 18% GST on house rent.


Fact
There would be no GST when a house is rented to a private person for personal use.
 

Conclusion
The new GST rule, effective from July 18, applies only to tenants registered with the GST system.  


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