Ankit Rahangdale is a seasoned finance professional with a distinguished background as a Chartered Accountant. Currently, he leads the Finance Department at Pice. With over five years of invaluable experience in the banking and finance sector, honing his expertise through esteemed institutions such as ICICI Bank and Standard Chartered Bank.
Rent agreements are essential for GST registration from rented premises.
Clearly mention address, lease terms, rent, and business usage.
A GST clause simplifies and accelerates approval.
Errors like incorrect addresses or signatures can cause rejection.
Goods and Services Tax (GST) registration is mandatory and hassle-free registration process for businesses exceeding the prescribed turnover limit or engaging in specific transactions. One of the key inclusion in the format for GST registration is a valid address proof for the principal place of business. In case of rental property, a rent agreement serves as crucial documentary evidence.
A legally valid rent agreement simplifies the GST registration process by proving the right to use the premises. However, it must fulfill certain conditions, such as being on stamp paper, duly signed, and accompanied by utility bills or an NOC from the owner.
Thus, in this article, we will explore all the particulars of a rent agreement for GST registration if you operate from a rented premise.
GST Registration & the Need for a Rent Agreement
If the aggregate annual turnover of a business exceeds the threshold limit of ₹10 lakh, ₹20 lakh, or ₹40 lakh (as applicable), it must register under GST (Goods and Services Tax). GST registration is crucial for businesses to collect tax (GST) from customers, claim and optimise ITC (input tax credit) on inward suppliers, and manage their tax liability.
While registering under GST, a business has to submit multiple documents, including an address proof. Suppose you plan to operate your business on a rented premise. In that case, you need to provide the tenancy agreement as proof of address of the concerned premises to complete the formalities of registration.
Role of Rent Agreement for GST Registration
A rent agreement plays a vital role in GST registration. For instance, a business might operate from owned or rented spaces. In such a scenario, a rent agreement acts as address proof for the rented space, ascertaining that the place of business is used for commercial purposes and not as a residential property. In other words, it confirms using the premises for business purposes.
Why Is a Commercial Rent Agreement Required for GST Registration?
The GST authorities ask for proof of address for documentation. A rental contract helps businesses present it as address proof and valid document submission helps complete the GST registration process faster. In other words, it is a necessary document for GST registration.
Moreover, without a valid rent agreement or other documents, the GST registration authorities reserve the right to reject your application. Thus, if you operate a business from a rented property, you must submit the rent agreement for documentation and smooth the GST registration process.
When Do You Need a Rent Agreement for GST Registration?
Here are the instances when you need a rent agreement to register under GST:
If you operate your business from a rented property.
Common Mistakes in Rent Agreements Leading to GST Registration Rejection
To help you avoid GST registration application rejection due to incorrect GST rental address format, here are some of the common mistakes you need to avoid:
1. Incorrect or Incomplete Address
Missing or a mismatch in office or shop number, building name, floor number, PIN code or landmark can be some of the common mistakes. Ensure you enter all the details and match the information entered for accuracy before you apply for GST registration. Specifically, you need to ensure that you fill in the accurate address as an incorrect address can lead to rejection of GST registration.
2. Inconsistent Information Across Key Documents
Ensure the business name and other supporting documents in the GST rent agreement are the same. Further, landlord and tenant’s PAN and Aadhaar card details must be error-free.
3. Missing Stamp Duty Payment
The stamp duty on rent agreements might vary between Indian states. Ensure you adhere to state laws while using stamp paper. An incorrect stamp paper, for instance, using a ₹100 stamp paper instead of the required value, might lead to the rejection of a GST registration application. You need to pay the correct stamp duty for a seamless experience.
4. Lack of Proper Signatures & Notarisation
Your rent agreement must include the signatures of the landlord (property owner) and tenant, followed by witnesses. Ensure all the required parties appropriately sign the rent agreement. A missing signature or information might result in a rejection of the GST registration application.
Stamp Duty for Rent Agreement for GST Registration
You need to pay a government fee known as stamp duty to validate a legal document. The stamp paper value varies significantly based on the Indian state and the lease agreement duration. Ensure you verify the actual stamp duty with an advocate or notarised person before you prepare a rent agreement. Here are the stamp paper values of some of the states based on prior experience:
Stamp Duty Requirements by State
The stamp duty for different states is as follows:
● Noida, Uttar Pradesh: 2% of the rent amount
● Ghaziabad and Bulandshahr, Uttar Pradesh: 4% of the total rent amount
● Delhi: ₹200 stamp paper
● Haryana: 2% of the amount of total rent
How to Ensure Your Rent Agreement is GST-Compliant?
This is to ensure you have a GST-compliant rent agreement for business compliance. Following the aspects mentioned below can help you in the process:
Use the Appropriate Format for Rent Agreement: The correct rent agreement format for GST registration needs to be followed, ensuring that the GST clause is included.
Verify Details Before Submission: Ensure you match your electricity bill with the property details. Note that you checked the stamp duty value to ensure it is accurate as per your state and lease agreement period.
Attach Supporting Documents: You need to attach the appropriate supporting documents, such as an electric bill that is not more than two months old, the landlord's PAN and Aadhaar card, and copies of the witnesses' Aadhaar (if possible).
Overall, A rent agreement plays a critical role in GST registration for businesses operating from rented premises. This rental agreement format for GST registration is backed by the use of the correct value of stamp paper.
Moreover, as discussed, the stamp duty varies between different states of India. As a result, ensure you verify the stamp paper value from an advocate or notarised person before you design the rent agreement. So, ensure all the necessary details are included in the rent agreement for a seamless GST registration experience.
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FAQs
Is a rent agreement mandatory for GST registration?
Yes, if your business operates from rented premises, a rent agreement is mandatory as valid proof of address for GST registration. It confirms your legal right to use the property for commercial purposes. GST authorities require it to authenticate the location of your business. Without a proper rental agreement, your GST registration application may face rejection.
What details should a rent agreement include for GST registration?
A GST-compliant rent agreement should clearly state the landlord and tenant's names, complete property address with PIN code, lease start and end dates, rent amount and payment mode, commercial usage clause, GST-related clauses, and signatures of all involved parties. Additionally, details about security deposits and bank account information are beneficial for documentation.
What is the GST clause in a rent agreement?
A GST clause specifies that the landlord consents to the tenant's GST registration and clearly states who will bear GST charges on rent. It includes information like the landlord’s GST registration status, applicable GST rate (typically 18% for commercial properties), and liability for GST payment. While not mandatory, including this clause streamlines the GST registration approval process
Can incorrect stamp duty affect GST registration?
Yes, incorrect stamp duty or using an inappropriate stamp paper can lead to the rejection of your GST registration. Stamp duty varies across Indian states, and using insufficient or incorrect-value stamp paper invalidates your rent agreement. Always verify the correct stamp duty applicable in your state before finalizing your rent agreement to ensure compliance.
Why are signatures and witnesses crucial in a rent agreement?
Proper signatures of the landlord, tenant, and witnesses confirm the legality and authenticity of your rent agreement. Missing signatures or witnesses make the agreement invalid, which can cause GST authorities to reject your registration. Always ensure all parties duly sign the agreement and provide identification documents, if required, to complete the validation process.
Ankit Rahangdale is a seasoned finance professional with a distinguished background as a Chartered Accountant. Currently, he leads the Finance Department at Pice. With over five years of invaluable experience in the banking and finance sector, honing his expertise through esteemed institutions such as ICICI Bank and Standard Chartered Bank.
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