The Goods and Services Tax (GST) has transformed the way taxation works in India, impacting almost every sector, including the rental market. Whether you are a landlord or a tenant, understanding GST on rent is crucial for remaining compliant and avoiding unnecessary penalties. This guide breaks down the key rules and applicability of GST on rent, covering both residential and commercial properties, as well as GST rates, calculation methods, and related income tax deductions.
What is GST on Rent?
The Goods and Services Tax (GST) is a unified tax system applicable to the supply of goods and services in India. When a landlord rents out property, the rental income may be considered a taxable supply under GST laws.
However, GST on rental income is not universally applicable. The type of property and its usage—whether residential or commercial—determines whether GST will be levied.
Types of Rent Covered Under GST
Not all rent is taxable under GST. Here’s how different rental scenarios are treated:
1. Residential Property for Personal Use
A residential property that is rented for personal use is generally exempt from Goods and Services Tax (GST). This means no GST is charged on the rent when the property is used as a home by a family, individual, or other tenant for their personal living needs.
2. Residential Property for Commercial Use
When a residential property is rented for commercial purposes, Goods and Services Tax (GST) applies at the rate of 18%. This situation arises when the tenant is a registered business entity that uses the property for activities related to its operations, such as running a guest house, providing employee accommodation, or other business-related uses.
3. Commercial Property Rent
Renting out commercial property for business purposes is subject to Goods and Services Tax (GST) at the rate of 18%. This includes properties such as shops, office spaces, warehouses, showrooms, and other premises intended for commercial use.
GST Rates on Rent
Here is a quick summary of the GST rates on rent based on property type and usage:
| Type of Rent | GST Rate | Taxable? |
|---|---|---|
| Residential use by individuals | 0% (Exempt) | No |
| Residential property used commercially | 18% | Yes (via RCM) |
| Commercial property rent | 18% | Yes |
| Religious properties (under limits) | Exempt | No |
The applicable GST on rent of commercial property is 18%, which is a standard rate under GST for most service categories, including leasing.
GST on Renting Residential Property
Residential properties used exclusively for living purposes are exempt from GST, regardless of rental amount or duration.
However, on July 18, 2022, a significant change was introduced. If a registered business rents a residential property (e.g., to house employees or as guest accommodation), the transaction becomes taxable under RCM (Reverse Charge Mechanism). This means:
- ▪️ The tenant (business), not the landlord, must pay the GST.
- ▪️ The business can claim Input Tax Credit (ITC) if the property is used for business activities.
This rule aligns with the intent of the law—to tax commercial use, not personal use.
GST on Renting Commercial Property
When it comes to commercial rent, GST is almost always applicable. Whether you’re renting out a shop, office, godown, or any commercial space, the following rules apply:
- ▪️ GST at 18% is charged on the rent amount.
- ▪️ The landlord must be registered under GST if their annual taxable turnover (including rental income) exceeds ₹20 lakh (₹10 lakh in special category states).
- ▪️ The tenant can claim Input Tax Credit, provided the rent is for business purposes.
For example, if a landlord charges ₹1,00,000/month as commercial rent, the applicable GST would be ₹18,000.
How to Calculate GST on Rented-Out Properties
To calculate GST on rental income, follow this formula:
GST = Rent Amount × GST Rate (18%)
Example:
If the monthly rent for a commercial property is ₹50,000, GST will be charged at 18%, which amounts to ₹9,000. Therefore, the total amount payable by the tenant will be ₹59,000.
The GST on commercial rent must be collected by the landlord and deposited with the government. A proper GST invoice should be issued with all mandatory details.
Tax Deduction for Income Tax on Rented Property
While GST applies to rental income as an indirect tax, landlords must also account for income tax on the same income.
Rental income is taxed under the head “Income from House Property” in income tax returns.
Key points:
- ▪️ Standard deduction of 30% allowed under Section 24.
- ▪️ Property tax paid can also be deducted.
- ▪️ Interest on home loans (if any) can be claimed as a deduction.
Unlike GST, income tax applies to both residential and commercial rent, based on ownership and usage.
So, landlords must factor in both GST obligations and income tax deductions when calculating net income from rental properties.
Conclusion
Understanding GST on rent is essential for staying compliant and avoiding penalties. While residential properties rented for living purposes are exempt, those used for business attract 18% GST, often under reverse charge. Commercial property rentals are also taxed at 18% if the landlord crosses the turnover threshold. Keeping proper records, issuing GST-compliant invoices, and remembering that GST and income tax are separate obligations will help manage rental income efficiently and reduce tax risks.
Frequently Asked Questions
1. Is GST applicable on residential rent?
No, if the property is used for residential purposes by an individual. Yes, if used for business (RCM applies).
2. What is the GST on commercial rent?
18% GST is applicable on all commercial property rentals.
3. Who pays GST under the RCM on rent?
If a registered business rents a residential property, the tenant pays the GST under the Reverse Charge Mechanism.
4. What is the GST threshold for rental income?
Landlords must register for GST if total taxable turnover (including rent) exceeds ₹20 lakh annually (₹10 lakh in special category states).
5. Can a tenant claim Input Tax Credit on rent?
Yes, if the rent is paid for a commercial property used for business and a valid tax invoice is issued.
