Last updated: October 23rd, 2024 2:25 PM

GST on Rent - Does Rent Attract GST?

GST on rent shall apply on commercial buildings leased or provided for rent by the owner or on behalf. The GST Act explicitly mentions that renting of immovable property shall act as a supply of services. However, GST is applicable only on certain types of commercial buildings. Commercial property rent in India is subject to GST (Goods and Services Tax) at a rate of 18%. This applies to renting out spaces like shops, offices, and warehouses. However, small taxpayers with an annual turnover below Rs. 20 lakhs are exempt from GST registration and collection on their rental income. In this article, we look at types of GST on rent in India, like commercial rent GST and how to calculate it. Stay compliant with GST regulations on rental income—file your GST returns easily with IndiaFilings!! [shortcode_14]

What is GST on rent?

GST (Goods and Services Tax) on rent is a tax calculated based on the rent charged to the tenant for an immovable property. Introduced on 1st July 2017, GST brought significant changes to the taxation system of rental income in India. Under this system, renting a property is considered a supply of service, making GST for rental income earned by landlords taxable at a rate of 18%. This tax is included in the total rent amount and is deposited by the landlord on behalf of the tenant. While GST applies to all goods and services sold in India, GST for rent is charged differently for residential and commercial properties. Residential properties are exempt from GST, whereas leasing or renting commercial properties is subject to this tax. The GST bill, introduced by the finance minister in Lok Sabha in February 2015, established these regulations, ensuring both landlords and tenants fulfil their tax obligations.

Tax on Rental Income before GST Implementation

Before the introduction of GST, landlords were required to register under service tax if their total taxable services, including rental income, exceeded Rs. 10 lakhs per annum. Service tax was applicable only to commercial properties or residential properties used for commercial purposes, with a rate of 15%. Rental income from residential properties used solely for residential purposes was exempt from service tax. In the pre-GST era, landlords had to obtain a service tax registration if their total taxable services exceeded the Rs. 10 lakhs limit. Those with rental income below this threshold were exempt from registration. The law specifically exempted rental income from residential properties let out for residential purposes from service tax. However, any residential property used for commercial purposes was subject to a 15% service tax. Thus, service tax was collected at 15% on the rent of commercial properties, ensuring landlords and tenants of such properties met their tax obligations. This framework was replaced by GST, which streamlined the taxation process for rental income.

Is Rental Income from Property Attracts GST?

The Goods and Services Tax (GST) Act in India treats renting of immovable property as a supply of services. However, GST for rent applies only to specific types of rental income, not all. Here's 

• Commercial Leases: Renting out commercial spaces like shops, offices, or warehouses for any purpose attracts GST.
• Residential Property for Business: GST applies if you lease a residential property (entirely or partially) for business use (e.g., running a guest house)

Note: Renting a residential property for residential purposes is exempt from GST for rental income. This applies to situations where the tenant uses the property solely as a residence.

Who should register under GST if the property is rented out to businesses?

In India, if you're renting out a property to a business, whether you need to register under GST (Goods and Services Tax) depends on your annual turnover.

• Mandatory GST Registration: You must register under GST if your total income from all business activities, including rent, exceeds Rs. 20 lakh annually. This applies even if a portion of your revenue comes from exempted sources.
• Relaxation for Smaller Landlords: If your total income, including business rent, stays below Rs. 20 lakh per year, you are not obligated to register under GST. This can be beneficial for smaller landlords.

GST on Residential Property Renting

In India, GST for rent is generally not applicable to residential property. However, there are some key points to understand when it comes to GST for house rent:

• For Residential Use by Individuals: The exemption of GST for house rent applies when you rent out a residential property to a registered individual for their personal use as a residence. This means the tenant should refrain from using the property for business purposes.
• Renting to Businesses Attracts GST: If you rent your residential property to a company or business entity, even if they use it as employee housing, GST for rent will be applicable. In such cases, the business would pay GST for house rent.
• Landlord Registration Not Required (Usually): As long as you're renting to individuals for residential purposes and your total income (including income from other sources) stays below the GST registration threshold (currently Rs. 20 lakh per year), you generally don't need to register for GST.

GST on Commercial Property Renting

In India, renting out commercial property is considered a taxable supply of service and attracts GST for rental income. This section explains what you need to know about commercial rent GST.

• Commercial rent GST Rate: As mentioned, The current GST rate applicable to commercial property rent is 18% of the taxable value.
• Landlord Registration: If your total income from all business activities, including rent from commercial properties, exceeds Rs. 20 lakh per annum, you must register under GST and collect and deposit GST on the rent.
• Exemption for Religious and Charitable Trusts: There's a specific exemption for registered religious and charitable trusts that own and manage religious places meant for public use. However, to qualify for this exemption, the rent must be below the following limits:
  • Rooms: Rent should be less than Rs. 1,000 per day.
  • Shops: Rent should be less than Rs. 10,000 per month.
  • Open Areas/Community Halls: Rent should be less than Rs. 10,000 daily.

Also read: How to claim HRA exemption while filing ITR?

How to Calculate GST on Rented Properties?

GST for rent is applicable when the landlord receives, not the total tenant cost, which may include maintenance or other fees. The current rate for GST commercial property rent is 18%. To calculate the GST amount, GST = (Rent x 18%) / 100 Examples: Commercial Property with Standard Rent: Let's say you rent out an office space for Rs. 50,000 monthly. The GST commercial property rent calculation would be: GST = (Rs. 50,000 x 18%) / 100 = Rs. 9,000 In this scenario, the landlord would need to pay Rs. 9,000 as GST on the Rs. 50,000 monthly rent. Residential Property Rented for Commercial Use (GST Applicable): GST applies if you rent out a residential property to a company for use as a warehouse (not a residence). The monthly rent is Rs. 25,000. The GST commercial property rent calculation would be: GST = (Rs. 25,000 x 18%) / 100 = Rs. 4,500 Here, the landlord would pay Rs. 4,500 as GST on the Rs. 25,000 monthly rent.

ITC Provisions on GST paid for Rental income

Landlords registered under GST can claim Input Tax Credit (ITC) on GST paid for certain expenses related to their rental property. However, there are specific conditions to be met when claiming ITC of GST for house rent:

• Eligible Expenses: You can claim ITC on GST paid for expenses related to repairs, maintenance, and brokerage incurred for the rented property.
• Capitalisation Exclusion: The ITC claim is only valid for expenses not considered capital expenditures. Any purchase of goods or services that is used for the property, which will be capitalised further, is not eligible for ITC. For example, repairs are eligible, but a major renovation might not be.
• Compliance with CGST Act: Section 17(5) of the CGST Act disallows ITC on expenses for constructing an immovable property, even for business purposes. 

GST TDS & Reverse Charge Mechanism

The landowner of the property, which is given out on rent, would have to collect the GST TDS from the individual who pays the rent at the property. Therefore, GST would be charged on the rent obtained.  The rent payer has to deduct income tax at the source at 10 per cent if the rent of the property exceeds an amount of INR 1.8 Lakhs per year. The Tax Deduction at Source applies to residential as well as commercial properties. There would be no GST on Tax Deduction at Source. GST on rent charged to a registered individual by the Government or the Local Authority for an immovable property by the Government shall apply under the Reverse Charge Mechanism (RCM).