Within the GST (Goods and Services Tax) framework, the term option to tax can be perplexing. Still, don’t panic; the idea is really rather straightforward. Knowing this will enable you, whether you run a business, rent a property, or offer services, to make better tax decisions.
In the context of India, let’s define what “option to tax” means.
Meaning of Option to Tax
Under GST, some items or services are either automatically exempt from taxes or not. Sometimes, however, the government lets you decide whether or not to pay taxes—even if it is not required. We call this decision the option to tax.
Basically, you are free to voluntarily enter into the tax system for particular transactions—usually connected to real estate or renting.
Typical Example: Renting a Commercial Property
- Personal use rental of residential property is free from GST.
- Under GST, though, renting commercial property is taxable.
Now, should a landlord decide not to charge GST (perhaps due to non-registered status), they still have the option to tax instead. This enables them to claim input tax credit (ITC) on their expenses including building, repair, or maintenance ones.
Why Select the Tax Option?
These are some reasons companies or landlords decide upon it:
- To seek ITC on GST paid for supplies
- To forward GST credit to renters with GST registrations
- To remain compliant and prevent upcoming tax uncertainty
- For enhanced record keeping and openness
How One Should Use the Option
- To opt-in, you have to be registered under GST.
- This option covers all upcoming sales for that property once you decide upon it.
- You could have to declare something and change GST returns.
- Usually, it binds for a set period—say, five years.
Notable Points to Remember
- Not for everyone; only helpful if you could profit from ITC.
- Before deciding on it, seek guidance from your GST consultant or accountant.
- The option to tax, once chosen, cannot be easily changed.
Usually, who prefers this?
- Developers of real estate and buildings
- Landlords leasing space for business offices
- Companies making profit from owned buildings
- Cooperative workspace providers
In summary
Under GST, the option to tax is a useful one, mostly applied in rental services and real estate. Should you be qualified, it allows you to charge GST and pursue input tax credit, so lowering your total expenses. Still, this is a big choice; once you sign up, you cannot readily undo it. So act sensibly and, if necessary, see a professional.