Housing sector

“The GST on rent will not only impact tenants, but also the rental housing industry”

Experts say the decision to levy an 18% GST on tenants will also impact landlords, which could tempt more people not to rent their apartments.

Tenants who earn more than R20 lakh a year and therefore fall under GST will now have to pay an 18% tax on the rent. Representation photo

The government’s decision to tax 18% GST on rental homes, to be paid by tenants whose business/professional income falls under the GST, will place an additional burden on taxpayers, experts said.

Pankaj Kapoor, Founder and Managing Director of Liases Foras, a no-brokerage property search firm, said: “This will indeed have a negative impact on the rental housing program as well as rental housing investment by businesses and business houses, and especially those senior executives who earn more than Rs 20 lakh per year and fall under GST. As such, previous rental yields are low, in the range of 2-2.5% in most parts of the country, including Mumbai, compared to 5-5.5% in developed countries, suggesting that there is a weak demand for rental accommodation. like today. In other words, rents have not appreciated relative to the capital value of property across India over the past few years.

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“For example, if someone pays a monthly rent of Rs 1 lakh, the value of the property would be between Rs 5 and Rs 6 crore, and the GST, which will be around Rs 18,000, will put a hole in the pocket of the tenant and possibly also the landlord, as the tenant may want to negotiate the rent. This means that there would be fewer people coming forward to provide rental properties, as their rental income could be negatively affected. And it may also impact demand and luxury housing projects as investors may not want to invest,” Kapoor said.

CA Ramesh Prabhu, Chairman and Founder of MahaSEWA, said: “At a time when the government is encouraging and promoting rental accommodation across India, it is unfortunate that GST has been made applicable to houses rented by persons subject to the GST. This will discourage people from building residential complexes for rent. The government must do some soul-searching and go back.

Explaining its possible impact, he said: “GST is payable on a reverse charge system by the lessee, if registered under GST due to his professional/commercial turnover, at 18% of the amount of the rent. This, however, will not apply to the salaried class. If someone has to pay GST for rent, they will naturally negotiate the amount of rent with the landlord. In short, the government did not consider the impact this would have on the supply of rental housing in metropolitan areas.

Lawyer Vinod Sampat, Founder and President of the Flat Users Residents Welfare Association, said, “There have been many changes to GST on residential premises effective July 18. Until July 17, there was no GST on residential premises. As per the rules, GST of 18% of the rental amount will be levied on registrants. However, if the premises are sublet to an individual, there will be no 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 if the licensee/lessee is a registered reseller then there will be 18% GST even for residential properties. Thus, companies would maintain a direct agreement of their employees with landlords/licensors to avoid GST, Sampat said, adding, “However, this will negatively impact government rental housing promotions.”

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

* 18% GST on rent only applies to those who earn more than R20 lakh per annum and fall under GST