The application of the Goods and Services Tax (GST) on house rent and commercial property rent has been a subject of considerable interest and discussion since its introduction in India. GST on rent has brought about significant changes in the taxation landscape, impacting landlords, tenants, and businesses alike. Understanding the nuances of GST on house rent and commercial property rent is crucial for navigating the complexities of the tax regime and ensuring compliance with regulatory requirements. In this article, we delve into the implications of GST on both residential and commercial rental transactions, shedding light on the tax treatment and its implications for stakeholders.
What is GST on rent?
GST on rent refers to the Goods and Services Tax applicable to rental income earned from leasing out immovable property, depending on its usage. Residential properties rented for personal dwelling are exempt from GST, meaning landlords do not need to charge or collect tax. However, if a residential property is rented for commercial purposes, or if the property itself is commercial (like shops, offices, warehouses), GST becomes applicable. The standard rate of GST is charged on taxable rent. Landlords are required to register under GST if their total annual rental income exceeds Rs. 20 lakh (Rs. 40 lakh in some special category states). Once registered, they must obtain a GSTIN, issue GST-compliant invoices, collect tax from tenants, and file returns.
GST applicability and rates on residential and commercial property rentals
GST is applicable differently on residential and commercial property rentals. Residential properties rented for personal dwelling are exempt, while commercial rentals attract 18% GST if the landlord crosses the registration threshold.
Type of Rental |
GST Applicable? |
GST Rate |
Residential property for personal use |
No |
Nil |
Residential property used for business |
Yes |
18% |
Commercial property for any use |
Yes |
18% |
Tax on rental income in the pre-GST era
In the pre-GST era, landlords were required to obtain service tax registration if their total taxable services, including rental income from all properties, exceeded ₹10 lakh annually. If the combined rental income was below this limit, service tax did not apply.
Under the earlier tax framework, only commercial properties that were rented out attracted service tax. This rule extended even to residential properties used for commercial purposes. The applicable service tax rate was 15% of the rent for such commercial rentals. In contrast, rental income earned from purely residential properties for dwelling purposes was fully exempt from service tax.
Does renting out a property attract GST?
As per the GST Act, renting out immovable property is treated as a supply of services. However, GST applies only to specific categories of rent, such as:
- When a property is leased, rented, or licensed for occupation.
- When a property—commercial, industrial, or residential—is rented for business purposes, either fully or partially.
Such arrangements are considered a taxable supply of services and attract GST. On the other hand, renting a residential property for residential use is exempt from GST. Any other type of rental or lease of immovable property for business activity is liable to GST, since it qualifies as a service under the GST framework.
No GST on residential property rented in a personal capacity for use as a residence
In the 48th GST Council meeting, it was clarified that GST is not applicable when a residential dwelling is rented by a registered person in their personal capacity for use as their own residence. This implies that if a registered individual, such as a proprietor of a proprietorship firm, rents a residential property personally (and not in the firm’s name) for self-residential purposes, then no GST liability arises on such rent.
Who is required to register when the property is rented out to businesses?
Any taxpayer earning above the prescribed exemption limit must register under GST and pay applicable taxes. Therefore, if you rent out property to a business, the rental income becomes taxable. If your total annual income from business activities, including rent and other exempt income, exceeds Rs. 20 lakh, GST registration is mandatory. For service providers, the GST threshold is Rs. 20 lakh, which is higher than the earlier Service Tax limit of Rs. 10 lakh. This revision offers relief to many landlords, as they now enjoy an additional exemption window of Rs. 10 lakh compared to the previous regime. It is important to note that in special category states, the GST threshold remains Rs. 10 lakh. Hence, landlords in these states must register under GST once their income crosses this reduced limit.
How to check the place of supply for charging CGST, SGST, or IGST
To determine the place of supply for charging CGST, SGST, or IGST:
- Identify the location of the immovable property being rented.
- Verify whether it falls within the same state (intrastate) or different states (interstate).
- Apply CGST and SGST for intrastate transactions and IGST for interstate transactions accordingly.
GST treatment if property is rented out for commercial purposes
For commercial properties, including offices, shops, warehouses, and industrial units, GST is applicable on the rent charged. This means that both the landlord and the tenant are required to comply with GST regulations and fulfil their respective tax obligations.
GST on commercial property renting
GST on commercial property renting applies when landlords lease out spaces such as offices, shops, warehouses, or other non-residential units. Under GST law, renting of immovable property for business or commercial purposes is treated as a supply of service, making it taxable. The standard rate is 18% GST, which must be charged on the rent collected. Landlords are required to register under GST if their annual rental income exceeds Rs.20 lakh (Rs. 40 lakh in certain states). Once registered, they must obtain a GSTIN, issue tax invoices, collect GST from tenants, and file regular returns. Tenants registered under GST can claim Input Tax Credit (ITC) on the GST paid, which makes compliance beneficial for businesses. Unlike residential dwellings rented for personal use, which are exempt, commercial property rentals are fully taxable, ensuring transparency and accountability in the real estate sector under GST.
How to calculate GST on rented-out properties
To calculate GST on rented-out properties:
- Determine the taxable value of the rent, excluding taxes like property tax and maintenance charges.
- Apply the applicable GST rate (CGST, SGST, UTGST, or IGST) to the taxable value.
- Collect and remit the calculated GST amount to the appropriate tax authorities.
What are the ITC provisions when GST is charged on rent?
In the GST regime, landlords are eligible to claim input tax credit (ITC) on the GST paid for services and goods utilised for the property. This encompasses expenses associated with maintenance, repairs, and other services, allowing landlords to offset their tax liabilities and potentially reduce their overall tax burden while ensuring compliance with GST regulations.
Is ITC on repairs and renovation of property given on rent allowed?
Landlords could claim input tax credit (ITC) on expenses for repairs and renovations undertaken for the property rented out. However, eligibility hinges on adherence to GST regulations, ensuring that repairs and renovations comply with the stipulated guidelines. Moreover, goods and services utilised must be for the furtherance of business activities to qualify for ITC under the GST framework.
What is the provision for a tax deduction on income tax for the rented property?
Landlords renting out properties can claim tax deductions on various expenses when filing their income tax returns. These deductions may include interest paid on loans taken for property acquisition or construction, property taxes, and expenses related to repairs and maintenance. Additionally, landlords can also claim deductions for expenses incurred in the management and upkeep of the rented property, ensuring favourable tax treatment and maximising tax efficiency.
Consider Bajaj Finance Loan Against Property
The impact of GST on rent has significant implications for tenants and property owners, potentially affecting rental costs and the tax liability associated with commercial leasing. Understanding how GST influences your rental agreements can help you better plan your finances and explore alternative ways to leverage your property for financial benefits. Bajaj Finance Loan Against Property allows you to use your residential or commercial property as collateral to secure substantial funding. This loan option provides high loan amounts, attractive interest rates, and flexible repayment terms. With a streamlined application process and the ability to prepay or foreclose with minimal penalties, Bajaj Finance Loan Against Property can help unlock the value of your property and provide the necessary financial resources for personal or business needs.
In conclusion, the implementation of GST has reshaped the taxation landscape for both residential and commercial rental properties, impacting landlords, tenants, and businesses across India. While residential properties rented for personal use remain exempt from GST, commercial leases are subject to its provisions. Understanding GST regulations is imperative for compliance and effective tax planning in the real estate sector. Additionally, leveraging financial solutions like Bajaj Finance Loan Against Property offers property owners flexibility and convenience, further enhancing their financial management capabilities in tandem with GST considerations.
