‘GST on rent will impact not just tenants, but rental housing sector’

Tenants who earn more than R20 lakh per annum and thus fall under the ambit of GST will now have to pay 18 per cent tax on rent. Representation pic

The government's decision to impose 18 per cent GST on rental houses, to be paid by tenants whose business/ professional income fall under the ambit of GST, will put additional burden on the taxpayers, said experts.

Pankaj Kapoor, founder and MD of Liases Foras, a non-broking real estate research company, said, "This will indeed have an adverse impact on the rental housing scheme as well as investment in rental housing by corporates and business houses, and especially those senior level management staff who earn over Rs 20 lakh per annum and come under the ambit of GST. As such the preceding rental yields are low which are in the range of 2 to 2.5 per cent in most parts of the country including Mumbai, as compared to 5 to 5.5 per cent in developed countries, which suggests that there is low demand for rental homes as on today. In other words, rentals have not appreciated in relation to the capital value of the property across India for the past few years."

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"For instance, if someone pays a monthly rent of Rs 1 lakh, the property value would be in the range to Rs 5 to Rs 6 crore, and the GST, which will be around Rs 18,000, will make a hole in the pocket of the tenant and eventually also the property owner as the tenant may want to negotiate the rent. That means there would be a lesser number of people coming forward to provide properties for rental as their rental income might be adversely impacted. And this may also impact luxury housing demand and projects as investors may not want to invest," Kapoor said.

CA Ramesh Prabhu, founder-chairman of MahaSEWA, said, "At a time when the government is encouraging and promoting rental housing across India, it is unfortunate that GST has been made applicable to houses rented by people who are liable under GST. This will discourage the people to build residential complexes to give on rent. The government needs to introspect and revert it."

Explaining its possible impact, he said, "GST is payable on a reverse charge system by the tenant, if registered under GST by virtue of his professional/business turnover, at 18 per cent of the rent amount. This, however, will not be applicable to the salaried class. If someone has to pay GST for rent, naturally they will negotiate the rent amount with the owner. In short, the government has not considered the impact it would have on the supply of rental housing in metropolitan areas."

Advocate Vinod Sampat, founder and president of Flat Users Residents Welfare Association, said, "A lot of changes have occurred with regards to GST on residential premises with effect from July 18. Till July 17, there was no GST on residential premises. As per the rules, GST to the tune of 18 per cent of the rent amount will be levied on registered persons. However, if the premises are sub-let to an individual, then there won't be GST. So, from a tax planning point of view, people will be tempted to take residential premises in the name of an individual and not in the name of the company or business houses."

"I would say that if the licensee/lessee is a registered dealer, then there will be 18 per cent GST even for residential properties. So, companies would entertain direct agreement of their employees with landlords/licensors to avoid GST," Sampat said, adding, "However, this will have an adverse impact on the government rental housing promotions."

Expense calculator
Rent GST to be paid by tenant
Rs 50,000 Rs 9,000
Rs 1 lakh Rs 18,000

'The 18% GST on rent is only applicable for those who earn over R20 lakh per annum and come under the ambit of GST