Companies renting apartments for their top executives will have to pay more, post the GST Council’s recommendations. They are now effective, and apartment purchases by registered entities will be accompanied by GST of 18%. Experts feel that this will affect companies who have rented guest houses or residential properties on rent for accommodating their employees and executives.
The ITC (input tax credit) of the GST on this rental amount that is paid by a corporate may not be approved by the GST Department as per experts. They may cite Section 17 (5) (g) of the 2017 CGST Act, where ITC on GST paid for the personal consumption of any service is denied. This GST amount will transform into a major cost for corporates, since they will not get tax credits on the same, according to several industry experts.
While GST applied previously on retail, office, or commercial spaces taken on lease, it was not applicable for residential property leases by corporations, corporates, and individuals. Many experts feel that every rental agreement will be costlier due to these new GST regulations, wherever there is any registered corporation or company involved. The 18% extra cost on the rental amount may be fully covered by the company or landlord, based upon the rental arrangement that they chalk out. Many companies may renegotiate their agreements with their landlords, regarding the party who will bear the GST cost. Both parties may also agree to split these costs.
The Government’s decision may affect premier rental deals in leading cities, where MNCs rent/lease apartments for their top executives, paying between Rs. 1-15 lakh per month. Landlords have leased prime real estate to leading corporates in metros such as Bangalore, Gurgaon, Mumbai, and Hyderabad. Residential home rentals were exempted from GST payments until the 17th of July, 2022. However, this decision will not adversely affect the housing rentals market, where the biggest consumers are salaried employees, who will not be affected by the same.
The Co-Founder and CFO at Square Yards, Piyush Bothra, stated that the decision will not have any effect on the overall outgoing for owners of small businesses and self-employed professionals. Yet, residential leasing, according to him, has intrinsic demand that will not vanish on account of more taxation. There could be a temporary or marginal stagnation or slump in the rental space, leading to a moderation of rental yields in major Indian cities over the next few months. However, this will be due to the acclimatization of the market to new dynamics that are tax-driven, according to him.
For a detailed report on this read the articles we were featured in:
Economic Times India – https://bit.ly/3cyvhJr
Business Standard – https://bit.ly/3zmzAjZ
Business Today – https://bit.ly/3zs8zvD
Published Date: July 20, 2022
