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With the Introduction of this act, there were minor changes introduced on commercial rental income, the limit was 10 Lakh for commercial rental income, with the introduction of GST it raised to 20 lakhs. Since rent has been an important source of income for many and here so the implementation of GST on commercial rental property reflects a structural approach to collect tax from this sector as well. Before 2018 the landlord had to do Registration of service tax if his annual rental income exceeded above Rs 10 lakhs, if the annual rental income would be less than 10 lakhs then no service tax would be charged to the landlord and he would be exempted from the tax. If the annual rental income exceeds 10 lakhs Rupees then 15% of the rent was collected as tax.
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Under the following conditions, GST would be applicable.
Under GST renting is considered as services so GST would be applicable on that but under GST, the threshold is raised so many landlords are exempted from payment of tax by rental income. If a property is rented for residential purposes then it would be exempted from property tax.
According to the GST act, any property given on rent for a commercial or industrial purpose will be charged under goods and service tax if the annual rental income exceeds 20 lakh Rupees. Any other type of lease or renting out for immovable business will be charged 18% and would be treated as a supply of service.
When the supplier of goods/services are liable to pay charges it’s is called forward charge mechanism, where as if the receiver of the goods/ service is liable to pay the tax it comes under Reverse charge mechanism. The tax liability is on the supplier of both goods and services, whereas in Reverse charge mechanism the tax liability is on the receiver of goods and services. The supplier needs to dot he registration once the threshold is exceeded in forward charge mechanism, whereas in reverse charge mechanism the received has to register once the threshold is exceeded. In forward chain mechanism a supplier can only be a registered supplier and an unregistered supplier cannot collect tax .
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A taxpayer earning more than threshold or 20 lakh rupees annually by renting the property for commercial or industrial purpose.In order to register a taxpayer needs to fill GST application form.
The taxpayer for rental income can take credit for his tax paid against the GST paid .If the provision to claim the Input tax credit are fulfilled ,ITC on GST paid on rent can be claimed. As per TDS provision the payer has to deduct 10% TDS from the Landlord if the owner collects GST from them. If case of violition of law, penalty will be charged and can also be imprisoned TDS is deducted on rent exceeding 2.4 lakh rupees annually . If the property is given to unregistered person then the government will deduct GST on forward charge mechanism.
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RELATED LINKS:
1.) Government forms office of GST commissioner to curb GST evasion
2.) GST reduced on household items : Middle Class Rejoice
3.) How to get GST registration with the help of LegalRaasta?