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The Goods and Services Tax (GST) rate on rent is 18%, but there are several nuances to it. The nature of property, the tenant's registration status, and the usage of the space determine whether GST on rent is applicable, at what rate, and who pays it. Decoding this is crucial for tax compliance and planning. This article explains the GST on rent in detail, along with its various caveats to help informed decisions.
Key Takeaways
- Commercial property rent attracts 18% GST, payable by the landlord under FCM if registered, or by the tenant under RCM if the landlord isn't.
- Residential property let out for personal use stays exempt from GST regardless of the rent amount.
- Residential property let to a GST-registered person for business use attracts 18% GST under RCM, payable by the tenant.
- Landlords must register under GST once aggregate turnover, including rent, crosses ₹20 lakh (₹10 lakh in special category states).
- Tenants using rented property for business can claim Input Tax Credit (ITC) on GST paid, subject to Section 17(5) conditions.
What is GST on Rent?
Under the Central Goods and Services Tax (CGST) Act, 2017, renting out immovable property is generally treated as a supply of services and falls within the scope of GST. Schedule II of the Act covers leasing, tenancy, and licensing arrangements for land or buildings as a supply of services.
Rental services are generally classified under SAC 9972, which covers real estate services. The applicable GST rate depends on the type and use of the property and the relevant exemptions.
1. GST on Renting of Residential Property
Regardless of the rent amount or the landlord's registration status, residential property rented out to a person for use as a dwelling is free from GST.
A personal dwelling is not considered a taxable economic activity, but rather a necessary service.
This changes when a residential property is let to a GST-registered person for business use; for example, as a guest house or staff accommodation.
According to Notification No. 05/2022-Central Tax (Rate), such rentals are subject to 18% GST under the Reverse Charge Mechanism as of July 18, 2022.
Under RCM, the tax is calculated and deposited with the government by the renter rather than the landlord.
Where the letting is purely for personal residential use, no GST applies, regardless of the tenant's own registration status.
2. GST on Commercial Property Renting
Standard Tax Rate: Commercial property rentals, including offices, shops, and warehouses, are taxed at an 18% GST rate.
Registered Landlord (Forward Charge Mechanism - FCM): If the landlord is registered under GST, they must add 18% GST directly to the rent invoice, collect it from the tenant, and remit it to the government.
Unregistered Landlord (Reverse Charge Mechanism - RCM): Per Notification No. 09/2024-Central Tax (Rate) (effective October 10, 2024), if an unregistered landlord rents to a GST-registered business, the tax burden shifts to the tenant under RCM. The tenant pays the 18% GST directly to the government.
Note: Businesses under the GST composition scheme are exempt from paying tax under RCM for this scenario starting January 16, 2025.
Jointly Owned Properties: For properties with multiple owners, each co-owner's share of the rental income is evaluated individually against the GST registration limit, provided their ownership shares and income portions are clearly defined and separately assessed.
Rent to Companies: Who Should Register Legally
If you meet the following criteria, you must register for GST:
- A landlord renting commercial property to a registered company or LLP, earning above ₹20 lakh (₹10 lakh in special category states), must register under GST.
- A landlord below this threshold may still register voluntarily if the tenant needs a compliant tax invoice to claim ITC.
- A registered tenant renting commercial premises from an unregistered landlord must discharge GST under RCM, even without crossing any turnover threshold.
- Companies renting residential accommodation for employees as a business expense fall under RCM for residential property, regardless of the landlord's registration.
- Landlords with multiple properties must aggregate rental income across all of them, along with other taxable turnover, to assess the registration threshold.
How to Calculate GST on Rented-Out Properties
Rent is subject to a flat 18% GST, if applicable. To calculate the GST component, multiply the periodic rent by 18%. Then, add the GST component to the base rent to determine the entire invoice amount.
For instance, a business pays a GST-registered landlord in the same state ₹1,00,000 per month to rent a commercial office:
|
Rent |
₹1,00,000 |
|
Total GST |
₹18,000 |
|
CGST |
₹9,000 |
|
SGST |
₹9,000 |
|
Total amount due from tenant |
₹1,18,000 |
The GST must be declared in GSTR-1 and stated individually on the invoice rather than included with the rent.
When RCM is used instead, the renter pays the landlord ₹1,00,000 and deposits an additional ₹18,000 in GST with the government, claiming it as ITC in GSTR-3B if qualified.
Saving Tax on Rented Property: Key Provisions
|
Provision |
Benefit |
|
Claim Input Tax Credit (ITC) |
Lowers tax outflow on GST paid for rent, repairs, maintenance, and brokerage used for business |
|
Split lease agreements clearly |
Distinguishing residential from commercial use helps establish correct GST applicability |
|
Maintain digital invoices and records |
Simplifies ITC tracking and GSTR-1/GSTR-3B filing |
|
Register before crossing the threshold |
Avoids interest and penalties for delayed GST registration |
|
Assess co-ownership income separately |
Each co-owner's share is evaluated individually against the registration threshold |
Input Tax Credit on Rental GST
-
For tenants: ITC can be claimed on GST paid on rent, under FCM or RCM, if the property is used for taxable business supplies and a valid tax invoice or self-invoice is available.
-
For landlords: ITC can be claimed on inputs used to provide the renting service, such as maintenance, security, and brokerage.
-
Section 17(5)(d) restriction: ITC is blocked on goods or services used to construct an immovable property on one's own account, even if it is later rented out.
-
No ITC for personal use: Rent paid for a residence used purely for personal purposes doesn't qualify for ITC.
Claiming eligible ITC correctly can meaningfully lower the effective cost of renting for a registered business.
Conclusion
The GST treatment of rent depends on factors such as the type of property, purpose of use, and GST registration status of the landlord and tenant. Residential property rented for personal residential use is generally exempt from GST. Different rules may apply when a residential property is rented to a GST-registered business or entity for business purposes, including situations where tax is payable under the Reverse Charge Mechanism (RCM).
