Understand GST on rent for residential & commercial properties in 2025. Learn tax rates, exemptions, ITC eligibility, & landlord compliance rules under GST law.
Renting property in India involves key tax considerations under GST for rent, affecting both landlords and tenants. Residential property rented for personal use is GST-exempt, but commercial properties and residential spaces leased to businesses attract an 18% GST rate. Landlords earning above ₹20 lakh annually must register for GST and comply with tax regulations.
For commercial property rentals, GST is mandatory, and businesses may claim input tax credit (ITC) to reduce their tax burden. Special provisions exist for co-working spaces, government leases, and educational institutions, influencing GST applicability. Additionally, tenants leasing residential property for business purposes must pay GST under the reverse charge mechanism (RCM).
In this blog, we will explore when GST applies to rental income, how ITC benefits businesses renting commercial properties, and the legal obligations for landlords to ensure compliance.
What is the GST on Rent for Residential Property?
Not all residential property rents attract GST. If a home is rented out for personal residential use, it is completely exempt from GST, regardless of the landlord’s total rental income. However, if a residential property is leased to a registered business or corporate entity, the transaction becomes taxable at 18% GST.
A unique aspect of residential property leasing is the reverse charge mechanism (RCM). Here, the tenant (if a registered business) is responsible for paying the GST, rather than the landlord. Landlords do not need to collect or deposit GST in such cases. However, the tax paid under RCM cannot be claimed as Input Tax Credit (ITC), making it a direct expense for the tenant. This rule significantly impacts businesses using rented residential spaces for guest houses or employee accommodations.
What is the GST on Rent for Commercial Property?
Unlike residential rentals, commercial property leases always attract 18% GST, regardless of the nature of the tenant. This means that whether a company is renting an office space, shop, warehouse, or commercial complex, GST must be charged on the rental invoice.
If the landlord is GST-registered, they must collect 18% GST on rent and deposit it with the government. In some cases, if the tenant is a registered business, they may be required to pay GST under RCM instead of the landlord. This mechanism ensures compliance while simplifying tax collection for commercial leases.
When Does GST Apply to Rent?
GST is applicable on rental income if the total rent collected exceeds ₹20 lakh per year (₹10 lakh in special category states). This threshold includes income from all rented properties under the same PAN. If the landlord’s total earnings exceed this limit, GST registration is mandatory, and tax must be charged on applicable rents.
The GST treatment varies for different types of rental agreements. Residential properties rented out for personal use are fully exempt from GST, but leasing a residential unit to a registered business entity attracts 18% GST under the reverse charge mechanism (RCM). In contrast, commercial property rentals always attract 18% GST, making it important for landlords to understand their tax obligations before leasing a space.
How to Calculate GST on Rented Commercial Properties?
To calculate GST on a rented-out property, you first determine the monthly rent charged to the tenant. GST is then calculated by applying the GST rate of 18% to this rent amount.
Therefore, GST on Rent = (Rent x 18%)/100
For example, if the rent for a rented commercial property is Rs. 20,000 per month, the GST would be calculated as follows:
GST = Rs. 20,000 x 18% = Rs. 3,600
Hence, the landlord must pay Rs. 3,600 as GST on the monthly rent of Rs. 20,000.
GST Registration for Landlords
If you’re renting out property, GST registration is mandatory when your total rental income exceeds ₹20 lakh annually (₹10 lakh in special category states). This applies whether you lease commercial property or rent residential space to a business entity.
Who Needs GST Registration?
If you earn rental income from properties, GST registration may be mandatory. Understanding whether you qualify depends on factors like income threshold, property type, and tenant category. Here’s who needs to register for GST on rental income:
- Landlords earning ₹20 lakh+ from rent (₹10 lakh in special states).
- Owners leasing commercial properties, regardless of tenant type.
- Residential landlords renting to businesses (18% GST rates applies under RCM).
How to Register for GST as a Landlord?
Registering for GST as a landlord ensures compliance and enables proper tax filing. The process is straightforward and involves submitting key documents through the GST portal. Follow these steps to complete your registration smoothly:
- Visit the GST portal (www.gst.gov.in) and create an account.
- Fill Form GST REG-01 with property details and rental income proof.
- Upload necessary documents (PAN, Aadhaar, rent agreement, bank details).
- Receive GSTIN (GST Identification Number) after approval.
Filing GST Returns on Rental Income
After registration, landlords must file GST returns regularly:
GSTR-1: Monthly/quarterly rental invoices.
GSTR-3B: Summary return for tax liability.
Failure to register or file returns can lead to penalties and legal issues. Keeping up with GST compliance ensures a smooth rental process and prevents tax disputes.
Exemption from Payment of GST
Certain scenarios are exempt from paying GST on rent, including:
- Residential property rented for residential use: As mentioned above, if both parties are not GST registered.
- Rental income below Rs. 20 lakhs per year: If the landlord’s total annual rental income from all properties is less than Rs. 20 lakhs (around $24,000), they are exempt from GST and therefore do not need to pay GST on rent.
- Specific types of properties: Renting of agricultural land, religious places, and charitable institutions is also exempt from GST.
GST Applicability on Rental Income
Understanding when GST applies to rental income is crucial for both landlords and tenants. While not all rental transactions attract GST, certain conditions determine whether tax needs to be paid. The applicability of GST depends on the type of property (residential or commercial) and who is renting it. Additionally, factors like the landlord’s total rental income and whether the property is leased to an individual or a business entity also impact GST liability.
Input Tax Credit (ITC) on Rental Properties
Businesses leasing commercial properties can claim input tax credit (ITC) on GST paid for rent, reducing their tax liability. The 18% GST charged on commercial rent can be offset against the business’s output tax, making commercial leases more cost-effective.
However, ITC is not available for residential property rentals, even if a business rents a house for employees. GST law treats residential property rent as an exempt supply, restricting ITC claims. To claim ITC on commercial rent, businesses must:
- Ensure proper GST invoicing from the landlord.
- Report rent-related ITC accurately in GSTR-3B & GSTR-1.
- Avoid mismatches to prevent ITC rejection or penalties.
By following GST compliance, businesses can effectively reduce tax costs, while landlords should maintain transparent tax records to avoid disputes.
Residential Dwelling Renting for Residential Use
The term “residential dwelling renting for residential use” refers to the act of a landlord leasing a property (house, apartment, etc.) to a tenant for the tenant living there as their primary residence. This is the most common type of rental agreement, and in most cases, it is exempt from taxes like Goods and Services Tax (GST) in India.
Here are some key things to know about residential dwelling renting for residential use:
Tax Implications
- Exemption: Generally, renting a residential dwelling for residential use is exempt from GST in India, as long as the tenant is not registered under GST. This means there is no tax levied on the rent amount.
- Reverse Charge Mechanism (RCM): If the tenant is registered under GST, the tax liability shifts to the tenant under the RCM. This means the tenant needs to pay the GST, calculated at 18%, on the rent amount. However, there are some exceptions to this rule, such as if the tenant rents the property in their personal capacity for their own residence and not for business purposes.
- Local variations: It’s important to note that tax regulations can vary depending on the location in India. Always check with the local tax authorities or a tax advisor for the specific rules and regulations in your area.
Agreement Terms
- Lease agreement: A standard lease agreement is typically used to outline the terms and conditions of the rental, including the rent amount, lease term, security deposit, maintenance responsibilities, and termination clauses.
- Utilities: Depending on the agreement, the landlord or tenant may be responsible for paying for utilities such as water, electricity, and garbage disposal.
- Repairs and maintenance: The agreement should specify who is responsible for repairs and maintenance of the property.
| Tenant | Landlord | GST |
ITC |
| Registered under GST | Registered under GST | GST under RCM | ITC can be claimed if the property is taken on rent for the furtherance of business |
| Unregistered | Registered under GST | No GST | Non Applicable |
| Unregistered | Unregistered | No GST | Non Applicable |
| Registered under GST | Unregistered | GST under RCM | ITC can be claimed if the property is taken on rent for the furtherance of business |
Conclusion
The new GST rules for rent on residential and commercial properties aim to streamline taxation and enhance transparency in property transactions. Landlords and tenants must understand their GST obligations, eligibility for input tax credits, and compliance requirements to avoid penalties and ensure legal adherence. For expert guidance on navigating these regulations and optimising tax benefits, Vakilsearch offers specialized services to assist property owners and tenants in managing their GST responsibilities effectively. Our experts also provide guidance on GST registration fees, ensuring a smooth and compliant registration process.
FAQ About GST on Rent
What is the GST rate on rent in India?
Residential rent is exempt from GST unless it involves commercial activities.
What is the RCM on rent of commercial property?
Starting October 10, 2024, the GST's RCM requires registered tenants to pay GST on commercial rents from unregistered landlords, ensuring compliance across commercial property rentals.
What is the RCM on rent of residential property?
GST is exempt on residential rentals unless rented to a registered person, where GST is paid under RCM. No RCM applies between unregistered parties.
How much GST is charged on commercial property rent?
Commercial property rent attracts a GST rate of 18% in India.
Is GST applicable on rental income from residential properties?
No, GST is not applicable on residential rental income unless used for business purposes.
What are the GST compliance requirements for commercial landlords?
Commercial landlords must register for GST if annual rental income exceeds ₹20 lakhs and charge 18% GST on rents.
Can GST on commercial rent be claimed as input tax credit?
Yes, businesses can claim GST paid on commercial rent as input tax credit, aligning with their business usage.
What is the threshold for GST registration for property rental income?
Property owners need to register for GST if their rental income from commercial properties exceeds ₹20 lakhs annually.
