Introduction Goods and Services Tax (GST) is applicable to various forms of rental income, depending on the type of property and the nature of the tenant. The taxation of rental income under GST has undergone several changes, and multiple notifications and circulars have clarified the applicability, exemptions, and reverse charge mechanisms. This guide provides a detailed analysis of the GST implications on rental income, considering the latest regulations and amendments.
1. Applicability of GST on Rental Income
Under the GST regime, renting of immovable property is considered a supply of service and is subject to tax under the following conditions:
- Commercial Property: Rental income from commercial properties such as office spaces, retail outlets, and warehouses is taxable at 18% GST.
- Residential Property: Renting of a residential dwelling for residential purposes is exempt from GST, regardless of the landlord’s GST registration status.
- Residential Property for Commercial Use If a residential property is rented for commercial purposes (e.g., as an office, guest house, or storage space), GST applies under the Reverse Charge Mechanism (RCM), provided the tenant is a registered taxpayer under GST.
- Agricultural Land: Leasing of agricultural land for agricultural purposes is exempt from GST. However, if the land is leased for non-agricultural activities, GST applies at the prescribed rate.
- Aggregate Turnover: If the total rental income (along with other taxable supplies) exceeds the threshold limit of INR 20 lakh (INR 10 lakh for special category states), GST registration and compliance become mandatory.
2. Relevant Notifications and Circulars
2.1 Notification No. 12/2017-Central Tax (Rate), dated 28-06-2017
- Exempts renting of residential dwellings used for residential purposes from GST.
- Commercial property rental continues to attract GST at 18%.
2.2 Notification No. 5/2022-Central Tax (Rate), dated 13-07-2022
- Introduced Reverse Charge Mechanism (RCM) for renting of residential dwellings to a registered person.
- The tenant (if registered under GST) is liable to pay GST under RCM instead of the landlord.
2.3 Notification No. 15/2022-Central Tax (Rate), dated 30-12-2022
- Clarified that if an individual rents out a residential dwelling in a personal capacity (not as a business), it remains exempt from GST.
- If rented for commercial purposes, GST applies under RCM.
2.4 Notification No. 07/2025-Central Tax (Rate), dated 16-01-2025
- Allowed composition taxpayers to be excluded from RCM on renting of immovable property.
- Regularized GST applicability for commercial property rental under RCM for the period 10.10.2024 to 15.01.2025.
2.5 Circular No. 101/20/2019-GST, dated 30-04-2019
- Provided exemption for long-term leases (30 years or more) related to industrial plots or financial infrastructure development.
3. GST Registration Requirements for Landlords
A landlord must register for GST if:
- The aggregate turnover from all taxable supplies, including rental income, exceeds INR 20 lakh (INR 10 lakh for special category states).
- The landlord is engaged in other taxable businesses, and the total turnover crosses the threshold.
- Renting a property to a registered person for commercial use (RCM applies, but registration may still be required for compliance purposes).
4. Reverse Charge Mechanism (RCM) on Rent
- Residential Property: If rented to a registered business entity, GST is payable by the tenant under RCM.
- Commercial Property: The landlord collects and remits GST unless rented by an unregistered person to a registered entity, in which case RCM applies.
5. GST Exemptions on Rental Income
GST is not applicable in the following cases:
- Renting of residential property for personal residence.
- Renting of property by charitable or religious institutions for certain purposes.
- Long-term lease (30+ years) of industrial plots for infrastructure development.
6. Common Scenarios and Their GST Implications
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Scenario
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GST Applicability
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Who Pays GST?
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Renting Commercial Property
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Yes, 18% GST
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Landlord
|
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Renting Residential Property for Residential Use
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No GST (Exempt)
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Not Applicable
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|
Renting Residential Property to a Registered Person for Business
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Yes, under RCM
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Tenant
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Renting by Unregistered Landlord to a Registered Tenant
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Yes, under RCM
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Tenant
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Long-term Lease (30+ years) for Industrial Infrastructure
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Exempt
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Not Applicable
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7. Conclusion
GST on rental income depends on multiple factors, including the type of property, the status of the tenant, and the aggregate turnover of the landlord. While residential renting for residential purposes remains exempt, commercial leasing attracts 18% GST. The introduction of RCM for residential property rentals to businesses has shifted tax compliance to tenants. Landlords and tenants must ensure proper invoicing, registration, and GST return filing to comply with the applicable provisions.
For further clarifications, landlords and tenants should refer to the latest CBIC notifications and ICAI guidance to stay updated on GST implications on rental income.
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