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Published on 10 April 2025

GST on Residential Property Rentals: Essential Updates and Implications

GST on Renting of Residential Property: Key Updates

As of July 18, 2022, the exemption under the Goods and Services Tax (GST) for renting residential dwellings (SAC 9972) is now subject to specific conditions. The exemption will apply only if the recipient of the service is not registered under GST. Below are the implications of this change:

GST Applicability Based on Recipient's Registration Status

  1. Unregistered Recipients:

    • If the recipient is not registered under GST, the renting service is exempt as per Notification No. 12/2017-CT (Rate) dated June 28, 2017.

  2. Registered Recipients:

    • If the recipient is registered under GST, the service will be taxed at a rate of 18%.
    • In this case, the recipient is responsible for paying the GST under the reverse charge mechanism.

  3. Input Tax Credit (ITC):

    • The recipient can claim ITC for the GST paid under the reverse charge. This is permitted because rent qualifies as a business expense, which is not categorized among the blocked ITC as specified under Section 17(5).

Definition of Residential Dwelling

While the term 'residential dwelling' is not formally defined in the GST Act, it can be understood as any permanent residential accommodation. It explicitly excludes temporary lodging options such as:

  • Hotels
  • Motels
  • Inns
  • Guest houses
  • Campsites
  • Lodges
  • Houseboats

Potential ITC Disallowance

It is important to note that the GST department may disallow ITC claims based on the following considerations:

  1. Personal Consumption (Section 17(5)(g)):

    • Goods and services utilized for personal use, including but not limited to those for employees and directors, may not qualify for ITC.

  2. Guest House Expenses:

    • ITC will not be allowed for expenses related to maintaining guest houses for temporary accommodation. This was established in the case of National Aluminium Co. Ltd., In re [2019] 102 taxmann.com 371 (AAAR – Odisha), which reversed an earlier ruling that permitted ITC for accommodations used for business purposes.

Conclusion

To summarize the key points:

  1. Residential Use by Unregistered Persons:

    • Exemption under Notification No. 12/2017-CT (Rate) continues if the residential property is rented to an unregistered individual solely for residential purposes.

  2. Commercial Use by Unregistered Persons:

    • If a residential property is rented for commercial purposes to an unregistered person, the exemption is not applicable. The supplier must charge GST on a forward charge basis.

  3. Use by Registered Persons:

    • For any residential or commercial purpose rented to a registered individual, GST is payable under the reverse charge mechanism, following Notification No. 05/2022-CT (Rate) dated July 13, 2022.
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