The GST increased some complications in every sector where it is applicable and it also affected commercial properties. For all commercial properties that are on rent, 18% GST is charged on the taxable value. The residential properties that are on rent are exempted from the GST.
Situation before GST on commercial property in India :
Before the GST was applied to commercial properties, The service tax was charged but it has some conditions. 15% of the rent was charged as service tax. It was also applied if a residential property was used for commercial purposes. If a residential property was used for renting only for residential purposes then service tax was not charged. If the yearly income from those rents exceeded Rs10 lacs then the service tax was charged.
Present GST implications of property rental
As per the guidelines laid down by the GST act, Residential properties are now treated as a supply of service but GST is applied only in certain cases. If a property is given for lease, rent, and licensed to occupy then GST will be applicable to it. If any type of property is leased out for commercial purposes irrespective of the type of property, GST will also be applicable to that property.
If a residential property is rented for residential purposes only, It is exempted from GST. Any other type of use commercial use of that property will be taxable under GST.
The immediate effect of GST on rent :
GST after coming into force has made a positive impact on the rental income of the people. If a residential property is used for renting only for residential purposes, GST will not be applied for that property and the previous limit of Rs 10lacs is also increased to Rs 20lacs due to which many people started getting more profit when compared with the previous guidelines. However, for any commercial purposes, the tax is now 18% which was earlier 15%.
Calculation of GST on commercial property rentals :
The GST is charged 18% on the rent paid. However, there are some cases in commercial property rentals when the properties are exempted from GST.
The shops or business spaces with monthly rent equal to or lesser than Rs 10,000 are exempted from GST. The rooms with rent lesser than or equal to Rs 1000 per day, community halls or open spaces that are charged Rs 10,000 or below per day, and the properties on rent that belong to charitable or religious trusts are also exempted.
Provisions of tax deductions on income tax for commercial property rentals :
There are two types of deductions allowed under a section24 of the Income Tax Act :
- Standard Deduction which is 30% of the gross value of the property for the maintenance of the property. It is calculated after deducting municipal taxes.
- Tax Deduction for the interest paid on the home. It is applicable for the owners with home loans related to the concerned property. It is available for all residential and commercial properties.
The introduction of GST came with some complications but for many investors and property owners it has been beneficial and for some, it came up with some disadvantages. You should be aware of the GST before investing in commercial properties.