GST on Rental Income

[Ethirajan Parthasarathy]

Due to litigation between landlord of commercial property & tenant, the rents were not received. Civil suit for eviction is likely to be filed.

Is landlord liable to pay GST under the above circumstances.

One view could be that the landlord has to pay GST atleast to the extent of rental deposit already received. Is this view correct. What will be the situation after fully setting off the rental deposit.

[KASTURI SETHI]

This is an extract of FAQ dated 31.3.17

Q4. What are the necessary elements that constitute supply under CGST/SGST Act?

Ans. In order to constitute a ‘supply’, the following elements are required to be satisfied, i.e. -

(i) the activity involves supply of goods or services or both;

(ii) the supply is for a consideration unless otherwise specifically provided for;

(iii) the supply is made in the course or furtherance of business;

(iv) the supply is made in the taxable territory;

(v) the supply is a taxable supply; and

(vi) the supply is made by a taxable person.

Without consideration, you are not liable to pay tax.

[DR.MARIAPPAN GOVINDARAJAN]

If deposit is adjusted against the rent-in-arrears, then GST would be payable.

[Ethirajan Parthasarathy]

Dear Doctor,

Thanks for your reply. Can you little elaborate what will be the position after rental deposit is fully adjusted & tenant has neither vacated nor paying rent

[KASTURI SETHI]

There is not an iota of doubt about leviability of GST on rental deposit. It is an advance. Dr.Govindarajan Sir has rightly opined.

[YAGAY and SUN]

It will be treated as payments made in advance (i.e.deposits) and adjust accordingly. Hence liable for charging of GST.

[Ganeshan Kalyani]

When the deposit was received it was not taxable as it was not for the service rendered or to be rendered. But when it is adjusted against the rent to be receivable but not received then it looses its identity as a deposit and it takes the name of rent. Hence, when the deposit is adjusted with the unrealisable rent it is subject to GST.

I guess it's applicable to certain types of rent such as:

1. If the property is given out on lease, rent or licensed to occupy

2. If the property is leased out for commercial purposes, industrial or business property

But in your situation I don't think you are liable to pay GST. Hope this was helpful at all.

AI Summary

GST on rental deposits: deposits become taxable when adjusted against rent in arrears for commercial property.
GST arises only on a taxable supply for consideration by a taxable person; deposits received as advances are not taxable while retained as deposits, but when a rental deposit is adjusted against rent in arrears it loses its identity as a deposit and is treated as rent, thereby attracting GST for commercial/industrial/business leases.