Updated on July 08, 2025 05:27:37 PM
The Goods and Services Tax (GST) has dramatically impacted how rental income from properties is taxed in India. Landlords and tenants need to understand the applicability of GST on rent, whether leasing out a residential apartment or renting a commercial office space, to comply with the law and avoid penalties.
Under the GST law, the renting of immovable property is a supply of service. However, not all rental income is subject to GST. When we talk about rentals, there is a difference in that residential property is treated differently from commercial property. Renting out residential property as a place to live is exempt from GST therefore, GST does not apply to a landlord renting out a home for someone to reside in. However, if the landlord is renting out a residential property to a GST-registered business entity, GST may apply at a rate of 18% depending on the circumstances.
Commercial property rental is different because commercial rents are treated similarly regardless of who the tenant is, and commercial rents are generally subject to tax at 18%. A landlord with annual rental service income of over ₹20 lakh (₹10 lakh in special category states) is required to register for GST and charge tax on the rent received from leasing out commercial space.
In India, rental income from residential rentals is considered under the Goods and Services Tax (GST) regime, depending on the nature and use of the tenancy. When renting residential property for personal use (i.e., for normal residential living), it is generally exempt from the GST. This means, for example, that if a landlord rents a house, apartment, flat, etc. to a person or family for residential purposes, the rent is not subject to GST.
If, rather, the residential property is rented out and the tenant is a GST-registered business, which is renting the property for a commercial purpose (i.e., to set up an office, or a guest house for employees, etc.), then GST may apply. In this situation, the landlord would be subject to an 18% GST under the reverse charge mechanism whereby the tenant (GST-registered business) is responsible for paying the GST.
The good news is that landlords are only required to register under GST when they have more than ₹20 lakh in total taxable income, including rent from the commercial property or other services, during the year (or ₹10 lakh in some special category states).
Leasing commercial property in India is regarded as a taxable supply under the Goods and Services Tax (GST) regime. As such, if you lease or rent commercial property - including offices, shops, warehouses or showrooms- you are going to have to charge GST at the rate of 18% on the amount of rent you receive (regardless of whether the tenant is an individual, company or other registered entity).
In the event that rental income from properties exceeds ₹20 lakh (or ₹10 lakh in a special category States) in a year from one or more commercial properties, the landlord should be registered under GST and collect tax from tenants, pass the GST to the government and report it monthly to quarterly through GST Return.
A key benefit provided under this system is that tenants registered under GST can take Input Tax Credit (ITC) for the GST paid so long as the rented property is used for business purposes. This benefit allows businesses to reduce their overall tax liability.
Here’s a clear comparison of how GST applies to residential and commercial property rent in India:
| Purpose | Residential Property | Commercial Property |
|---|---|---|
| Is GST Applicable? | No, if used for living purposes | Yes, GST at 18% is charged |
| Who Pays the GST? | Usually not needed | Tenant pays GST to a landlord |
| If Rented to a Business? | GST may apply (reverse charge) if used for business | GST always applies |
| GST Registration Needed? | Only if the total rent + other income is over ₹20 lakh | Yes, if rent crosses ₹20 lakh a year |
| Can a Tenant Claim GST Back (ITC)? | No | Yes, if used for business purposes |
| Use Type | For staying/living | For offices, shops, warehouses, etc. |
| GST Rate | 0% (in most cases) | 18% |
Under the Goods and Services Tax (GST) regime as implemented in India, landlords should adhere to a set of rules when renting out their properties. Whether renting a residential flat or commercial property, it is important to know when GST registration is required to comply and avoid penalties.
The rule of thumb for property rented out is that landlords will be required to obtain GST registration if their annual taxable supply of income, which includes rental income, exceeds ₹20 lakh in the financial year (or ₹10 lakh in special category states). This rule will very likely apply to landlords renting out commercial properties, as commercial rentals are liable under GST at 18%.
However, if the rental is residential and rented for personal use (e.g., to live in), then GST does not apply, and registration is not required. However, if that same residential property is rented to a business that is registered under GST and rented for commercial purposes (e.g, guest house, office, etc.), GST may apply under the reverse charge mechanism:
It is very important for landlords renting out residential or commercial properties to understand how to invoice and the tax payment process under GST.
The landlord must provide a tax invoice if registered under GST and must issue one on a monthly basis or as per the tenancy lease/ agreement.
Things to include in the invoice:
Residential Property Rent:
Forward Charge (Commercial Rent):
Reverse Charge (Residential rented to business):
Conclusion
Both landlords and tenants need to understand how GST operates with rental income to comply with tax. Rent for residential property, where the tenant resides there for personal use, is exempt from GST however, rent for commercial property is subject to GST at a taxable value of 18%, and landlords earning above the threshold must register for GST.
For residential property rented out to earn income (i.e., for business), the rental may attract GST under the reverse charge mechanism, meaning the tenant pays the GST. In the case of commercial property, landlords must ensure they issue proper invoices, collect GST, and file returns regularly.
At Professional Utilities, we leverage our industry knowledge and expertise to help businesses navigate complex regulations, minimize risks, and optimize operations for maximum efficiency and profitability.
Frequently Asked Questions (FAQs)
No, GST is not applicable if the residential property is let for personal use. Therefore, it is exempt under GST.
Yes, there is GST at the rate of 18% charged on rentals of commercial properties.
No, unless their total taxable revenue, including income from rent, exceeds ₹20 lakh (or ₹10 lakh in specified states), landlords do not need to register for GST.
The GST rate charged on rented commercial properties is 18%.
Yes, a tenant can claim Input Tax Credit (ITC) for the GST paid if the property is used for commercial purposes.
If the residential property is rented to a GST-registered business, GST may apply under the reverse charge mechanism.
No, GST is not charged on the refundable security deposit unless it is adjusted against rent.
The tenant pays the GST directly to the GST authorities under the reverse charge, not the landlord.
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