GST on Renting Residential Property in a Company’s Name

In recent years, many individuals have explored renting residential properties under their company’s name to reduce tax liabilities, particularly Goods and Services Tax. (GST). However, with the implementation of new rules and regulations, it’s important to understand the implications of such actions and whether this is a viable strategy in 2024. This article will explain whether you can take a residential property on rent in your company’s name for personal use to save GST, based on the latest rules.

Understanding GST on Residential Property Rentals

Before July 18, 2022, renting residential properties was exempt from GST for most cases. However, the government made significant changes in the GST law with Notification No. 4/2022-Central Tax (Rate), under which renting of residential property to a registered person (company or individual) became subject to 18% GST under the Reverse Charge Mechanism (RCM).

Thus, if you rent a residential property under the company’s name, the following rules apply:

• GST Applicability: If the residential property is taken on rent by a registered entity, GST at 18% will be applicable under RCM

• Taxation on Input Tax Credit (ITC): Unfortunately, ITC cannot be claimed for GST paid on the rental of residential properties, as per Section 17(5) of the CGST Act, which specifically blocks ITC on renting or leasing of residential properties for personal use.

A quick summary is given below in the table for easy reference.

Conclusion

Renting a residential property under the company’s name for personal use does not provide any GST savings under the new rules. The company will be required to pay GST at 18% on the rental under the Reverse Charge mechanism (RCM), and no input tax credit (ITC) can be claimed. Therefore, while this practice was once explored to reduce tax liability, the current regulations do not favour it.

It’s essential to carefully consider the implications of renting under a company’s name and consult with your Tax/Gst professional to ensure compliance with the latest laws.