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The notification from the Finance Ministry exempting residential rental housing from Goods and Services Tax (GST) means businesses may relax.
The exemption applies to “services by way of renting of a residential dwelling to a registered person where – (i) the registered person is the proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence; and (ii) such renting is on his own account and not that of the proprietorship concern,” according to a Ministry of Finance notification from the 30th of December.
Beginning on January 1, 2023, this will be in effect.
Earlier, services rendered in the form of residential home rental for personal use were excluded from GST until 17.07.2022.
However, beginning on July 18, 2022, the receiver was responsible for paying the applicable tax if such services were provided to a registered person. As a result, the scope of the exemption was significantly narrowed, and as of 18.07.2022, the exemption was applicable only if the residential residence was leased to an unregistered person.
As a result, there was a problem with the owner of a GST-registered firm who leased a home for their private use. According to a strict reading of the changes made effective as of 18.07.2022, such owners would be required to pay GST on the rent via the reverse charge method (RCM).
Because of the aforementioned Explanation by the Finance Minister, the registered owner is not required to pay GST on rent that they pay for their personal use of a residential property. In other words, if the residential property is leased out for use in a sole proprietorship firm, GST is due (e.g., for use as a guesthouse, etc.)