Navigating GST on Rental Income: Key Rules, Exemptions & Compliance

[RAHUL MODI]

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

Scenario	GST Applicability	Who Pays GST?
Renting Commercial Property	Yes, 18% GST	Landlord
Renting Residential Property for Residential Use	No GST (Exempt)	Not Applicable
Renting Residential Property to a Registered Person for Business	Yes, under RCM	Tenant
Renting by Unregistered Landlord to a Registered Tenant	Yes, under RCM	Tenant
Long-term Lease (30+ years) for Industrial Infrastructure	Exempt	Not Applicable

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.

Discussions to this article

[Sadanand Bulbule]

Sir

Can you highlight the entitlement of ITC on the inward supply of goods/services exclusively used in the construction of immovable property given on rent for commercial purpose on which output tax is payable @18%, in the light of proposed amendment to Section 17[5][d] of the CGST Act followed by  Safari Retreats Pvt. Ltd. vs. Chief Commissioner of CGST (2024 (10) TMI 286 - SUPREME COURT)  judgement of the Supreme Court?

[RAHUL MODI]

The entitlement of ITC on inward supplies of goods and services used exclusively for the construction of immovable property (intended for commercial renting) has been a subject of legal debate, especially following the Supreme Court's ruling in Safari Retreats Pvt. Ltd. vs. Chief Commissioner of CGST (2024 (10) TMI 286 - SUPREME COURT) and the proposed amendment to Section 17(5)(d) of the CGST Act.

The proposed amendment seeks to override the Supreme Court's ruling, reinforcing the restriction on ITC, even where the property is used for taxable rental income. This move, while aimed at preventing revenue leakage, raises critical questions:

• Should ITC eligibility depend on the end-use of the property rather than a blanket disallowance?
• Does this create a cascading tax effect, contradicting the fundamental principles of GST?
• With commercial leasing already attracting 18% GST, is the denial of ITC justified from an economic efficiency standpoint?
• Does a retrospective amendment create uncertainty and hinder the ease of doing business, especially for real estate and commercial leasing sectors?

This issue continues to be a subject of legal and policy debate, and it remains to be seen whether further judicial scrutiny or industry pushback could lead to a reconsideration.

[Sadanand Bulbule]

Thank you for your quick response. Proposed amendment to Section 17(5)(d) should become more easier to understand its implications on the eco-system of ITC as long as there is output tax on outward supply of services related to renting or leasing of immovable property for commercial purposes. Otherwise the basic concept of “ for use in the furtherance of business” under Section 16(1) breaks down on its own. Let’s hope for the best in the interest of equity.