Its not very often that we get to hear about GST on rent, isn’t it?! After all, when was the last time we paid GST on the rent that we incur for staying in apartments!
But here’s a catch. It’s a very different ballgame for business owners altogether.
The taxation Advisory scenario for rental income in India has undergone significant changes with the GST regime coming into effect. Whether you are a owner of commercial properties, residential properties, or pay rent as a business entity: understanding its GST implications is crucial for compliance and financial planning. This writeup demystifies the grey area of GST applicable on rent on immovable properties and explains the recent regulatory updates that affect registered businesses.
GST Rates: Commercial vs. Residential Properties
Commercial Properties (18% GST): For offices, retail spaces, warehouses, and industrial units, the standard GST rate is 18%, regardless of whether the owner is registered under GST or not. A GST-registered landlord must collect GST at 18% on the rental amount and issue a tax invoice for the same.
Residential Properties:
- Rented to unregistered persons: No GST applies, fully exempt if used entirely for residential purposes.
- Rented to registered business entities: GST at 18% applies under the Reverse Charge Mechanism (RCM) since July 18, 2022.
The Reverse Charge Mechanism (RCM) logic: Key Game Changer
What is RCM?
Imagine an extraordinary scenario where you have to directly pay GST to the government because the restaurant from where you ordered your pizza is unable to pay the same on your behalf.
In other words, with respect to rent in particular, RCM shifts the responsibility for paying GST from the supplier (landlord) to the recipient (tenant). The tenant calculates and pays GST directly to the government instead of the landlord charging it themselves.
October 2024 Update: Commercial Property RCM
In a recently held GST Council Meeting, it was decided that –
If a GST-registered tenant rents a commercial property from an unregistered landlord, the tenant is now responsible for paying 18% GST under RCM.
2025 Update: Composition Taxpayers Exemption
An important relief for smaller businesses: Composition taxpayers are now exempt from RCM on renting services, effective from January 2025 under Notification No. 07/2025. This effectively means that composition scheme dealers do not need to pay or file GST on renting transactions, even if they are registered tenants of commercial properties.
Who Pays GST Under RCM?
| Scenario | Who Pays GST? | Rate | ITC Available? |
| Commercial property from registered landlord | Landlord (charged to tenant) | 18% | Yes, if eligible |
| Commercial property from unregistered landlord to registered tenant | Registered tenant (RCM) | 18% | Yes |
| Residential to unregistered person | None | Exempt | No |
| Residential to registered person | Registered tenant (RCM) | 18% | Yes, if business use |
Input Tax Credit (ITC): Claiming GST on Rent Paid Earlier Back
Yes, on GST paid on rent under RCM basis, ITC can be claimed – with important conditions:
- Property must be used for business purposes and not for personal use.
- Valid tax invoices and supporting documents must be maintained.
- GST returns must be duly compliant with respect to accuracy and punctuality.
For registered tenants paying GST under RCM, ITC is available if the property is used solely for business purposes and not for personal purposes, thus providing significant relief to them.
Essential Compliance Checklist – To Take Care Of
- Verify landlord’s GST registration status before finalizing agreement.
- Determine applicable GST rate based on property type and usage.
- Confirm if composition scheme applies ( they are exempt from RCM from January 2025).
- Calculate monthly GST liability accurately.
- Obtain valid tax invoices from registered landlords.
- File GST returns on time if liable under RCM.
- Claim ITC correctly in GST returns if eligible.
- Maintain documentation for stipulated years as per GST compliance requirement. (6 years)
- Ensure RCM applicability, especially for commercial properties (from October 1, 2024).
- Calculate and deduct TDS if rent exceeds ₹2.40 lakh per annum.
Some Common Misconceptions Addressed
Myth 1: “If landlord isn’t registered under GST, I don’t pay GST.”
Reality: Registered tenants renting commercial property from unregistered landlords must pay 18% GST under RCM.
Myth 2: “GST on rent is always claimable as Input Tax Credit.”
Reality: ITC requires the property be used for business with proper documentation and GST compliance.
Myth 3: “TDS and GST are the same.”
Reality: They are separate taxes. TDS is income tax (10%), GST is indirect tax (18%). Both directly apply to rental transactions.
Myth 4: “Residential property rentals never attract GST.”
Reality: GST at 18% applies when residential property is rented to registered persons, even if used for business purposes.
Summing It Up
The GST regime on rental income has standardized India’s property rental market while introducing complexity requiring careful attention. The expansion of RCM to commercial properties from unregistered landlords represents a significant regulatory upshift. Whether you are a tenant, landlord, or property manager, understanding these provisions is essential for compliance and budgeting. The 18% GST on commercial property rentals and RCM on certain residential rentals are now permanent features of the rental landscape.
For any specific solutions tailored to your unique businesses, consult us at ATMS Advisors.
