Renting property or assets involves various tax considerations, impacting both landlords and tenants. This involves TDS on rental income under IT Act in addition to GST on rent, including applicable rates, exemptions and the Input Tax Credit (ITC) entitlement for tenants.
Income Tax Deduction at Source on Rental Income
Section 1941, 1941B and 1941C of Income Tax Act cover tax deduction on rent payment i.e TDS on rent. The TDS has to be deducted if the total rent amount paid or payable during a financial year exceeds Rs 240000.Individuals and HUF (not covered under Tax Audit) who pay rent to a resident exceeding Rs 50000 per month are also liable to deduct tax on rent payment.
The rate of tax deduction on rent of land, building, furniture and fittings is 10 percent and for rent of plant, machinery and equipment is 2 percent. TDS has to be deducted at the time of payment or credit of rent to the payee. Payment to the government must be made within 7 days from the end of the month in which the deduction is made. In case the amount has been paid/credited in March, the due date of payment is 30 April. When the rental payment is made to the government or local authority or statutory body , no TDS is required to be made.
GST on Rent
Rent is chargeable service under GST Act. While TDS deduction is the responsibility of the tenant , charging GST is the responsibility of the landlord or owner.GST is charged at the rate of 18 percent on rent amount.GST is leviable on renting of property for commercial use. Rent paid on renting of residential dwelling units for use as residence, is exempted from the levy of GST. However, exemption is not applicab;le for use as office/commercial /other purpose. Exemption is available only if the tenant is not registered under GST Act subject to fulfilling of other conditions mentioned above under 2022 notification.
If a firm or company rents residential property for use as a guest house or other purpose, GST is applicable. There are other exemptions from GST on rent. This will apply if the total value of services provided and goods supplied by the landlord during the year is less than Rs 20 lakhs during the financial year and he is not registered under GST Act. Or rent is being received by a registered charitable trust or a religious trust which owns and manages a religious place meant for the public . The other applicable conditions are – the rent on rooms is charged at the rate of Rs 1000 or less per day, the rent on shops and other spaces for business are charged Rs 10000 or less per month and rent on community halls or an open area is charged at the rate of Rs 10000 or less per day.
ITC on GST Paid
When GST is applicable on rent, the tenants paying the rent are entitled to claim ITC if they are registered under the GST Act. The taxpayer can claim a credit of the GSTpaid on the amount of rent. Also, the charged GST should be deposited with the government to be able to claim ITC. Therefore the tenants must make sure that the GST collected has been deposited by the landlord with the government before claiming ITC.
The place of supply shall be the location of the property rented. Even though the owner resides in another state, the place of supply shall be the state in which immovable property is located. It is important to note that the applicability of GST is determined by the purpose for which the property is used and not by the nature of the property. Ajit Yadikikar (www.taxguru.in)/NAR-India
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