GST on Renting of Property Guide

GST on Renting of Property

A Complete Guide for Landlords and Businesses

If you run a business, rent a commercial space, or lease out your property, understanding Goods and Services Tax (GST) rules is crucial. In India, whether GST applies to rent depends entirely on the type of property, its purpose of use, and the GST registration status of both the landlord and the tenant.

Standard GST Rate: 18%

1. Renting of Commercial Property

(Offices, Shops, Warehouses, Godowns, etc.)

Scenario A: Landlord is Registered under GST

This falls under the Forward Charge Mechanism (FCM). The landlord will charge 18% GST on the rent invoice, collect it from the tenant, and deposit it with the government. Eligible tenants can claim this as Input Tax Credit (ITC) if used for business.

Scenario B: Landlord is Unregistered & Tenant is Registered

Effective from October 10, 2024 (Notification No. 09/2024–Central Tax (Rate)), the Reverse Charge Mechanism (RCM) applies here. The registered tenant is directly liable to pay the 18% GST to the government.

Scenario C: Both Landlord & Tenant are Unregistered

No GST is applicable in this case.

2. Renting of Residential Property

GST on a house or flat is determined by whether the property is used for living (personal) or business purposes:

A. Property Used for Residential (Personal) Purpose

  • Tenant is Unregistered: This is fully Exempt / NIL GST, regardless of the landlord's registration status.
  • Tenant is Registered: Even if a registered person rents a residential dwelling purely for personal use, the exemption continues and no GST is payable.

B. Residential Property Used for Business / Commercial Purpose

  • Landlord is Registered: Falls under FCM. The landlord charges and pays 18% GST.
  • Landlord is Unregistered & Tenant is Registered: Effective from July 2022, RCM applies. The registered tenant must pay the 18% GST directly to the government.
  • Both Landlord & Tenant are Unregistered: No GST is applicable.

3. Special Provisions for Composition Taxpayers

Business owners enrolled under the GST Composition Scheme face specific and strict rental regulations:

  • When the Landlord is a Composition Dealer: Renting immovable property is considered a taxable supply of services. Composition dealers cannot freely provide such services without complying with specific rules. They might need to opt out of the scheme or take separate registration.
  • When the Tenant is a Composition Dealer: Under Section 10(2)(d) of the CGST Act, the liability to pay tax under RCM can directly impact and potentially invalidate a business's eligibility for the Composition Scheme.
📢 Important Relief for Composition Taxpayers (Effective January 2025)
To ease compliance, the government introduced Notification No. 07/2025. Effective from January 2025:
  • Composition Scheme Taxpayers: No RCM liability when renting commercial or immovable property (except residential dwellings) from unregistered landlords.
  • Regular Registered Taxpayers: RCM rules continue to apply normally.

Key Takeaway

GST applicability on property rent relies strictly on usage type and registration details. Composition taxpayers must stay highly cautious, as unexpected RCM liabilities can ruin their scheme eligibility. Always verify the latest official notifications before taking a tax position.

Frequently Asked Questions (FAQs)

Q1: What is the standard GST rate on renting commercial property?
Ans: The standard GST rate is 18% on renting services, wherever the transaction attracts tax liability.
Q2: Do I have to pay GST if I rent a house for personal living?
Ans: No. Renting a residential property purely for personal residential purposes is completely exempt from GST, even if the tenant holds a GST registration.
Q3: Can a registered tenant claim Input Tax Credit (ITC) on rent?
Ans: Yes. If a registered business rents a commercial property for business operations, they can claim Input Tax Credit (ITC) on the 18% GST paid, subject to standard eligibility rules.
Q4: When does a tenant pay GST under RCM for a commercial property?
Ans: If the landlord is unregistered but the tenant is registered under GST, the tenant must pay the 18% GST directly to the government under the Reverse Charge Mechanism (RCM). This rule is effective from October 10, 2024.
Q5: What is the January 2025 relief given to Composition Taxpayers?
Ans: Under Notification No. 07/2025, composition taxpayers do not have to pay RCM when they rent commercial property from an unregistered landlord. This relief does not apply to regular GST taxpayers.
Q6: Is GST applicable if both the landlord and tenant do not have a GST registration?
Ans: No. If both parties are unregistered, no GST applies to the rental transaction, whether the property is residential or commercial.

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