GST On Renting Of Immovable Property: Tax Implications For Residential And Commercial Properties

If you own a flat and you rent it out or you are a business and you pay rent for an office the Goods and Services Tax may affect your transaction. You need to know who is responsible for paying the Goods and Services Tax, how much Goods and Services Tax is applicable and when the Goods and Services Tax must be paid. This is important so you can avoid problems with the rules and penalties.

This guide explains the Goods and Services Tax rules for flats and commercial offices, in India in a simple way with examples to help you understand the Goods and Services Tax rules.

Why Does GST Apply to Renting?

When GST replaced service tax in July 2017, renting of immovable property was brought squarely into its ambit. The law says that renting is like providing a service so it can be taxed. But that does not always happen.

There are three things to consider when it comes to renting and the Goods and Services Tax.

These things are:

What kind of property is being rented, like a house or an office, which is either residential or commercial?

What the property is actually being used for, such as a place to live or a place to run a business or maybe just to store things

Who the tenant is, like a person who has registered for the Goods and Services Tax or someone who has not registered for the Goods and Services Tax

GST on Residential Property Rentals

This is the area that trips up most people. The simple answer: not all residential rent is taxable.

When GST Does NOT Apply

Renting of a residential dwelling for use as a residence is unconditionally exempt from GST only if the tenant is unregistered under the GST

So if you're a landlord renting your flat to a family for them to live in — no GST, no invoice, no filing obligation on account of this transaction. Clean and simple.

When GST DOES Apply on Residential Property

• When a residential property is repurposed for commercial or business use (office, guest house, PG operated as a business, etc.)
• When a GST-registered person rents a residential dwelling for use in business — here, RCM applies at 18% (covered in detail in Section 6 below)
• When PG/hostel accommodation is provided as part of a commercial enterprise and aggregate turnover crosses the registration threshold

GST on Commercial Property Rentals

When you rent out a property like an office or a shop or a warehouse or a factory or a showroom you have to pay eighteen percent GST. This eighteen percent GST is made up of nine percent CGST and nine percent SGST when it is within the state. If it is between two states then it is eighteen percent IGST.

Here are the key points that every landlord and every tenant should know:

The rate of GST that you have to pay is eighteen percent as per the Notification Number 11/2017-Central Tax Rate. This is against the SAC 997212

The landlord is the one who pays the GST. The landlord will charge eighteen percent GST on the rent invoice. Then deposit it under the forward charge system

If the total income of the landlord from all the rentals in one year is than twenty lakhs rupees then the landlord has to get a GST registration. If the landlord is from a category state then this limit is ten lakhs rupees as, per the Section 22 of the CGST Act and GST registration becomes mandatory for the landlord.

Reverse Charge Mechanism (RCM) on Residential Property Rentals

This is the single most impactful change in recent years, and many businesses are still not fully compliant.

The Legal Trigger

With effect from 18th July 2022, as per Notification No. 05/2022-Central Tax (Rate), read with Section 9(3) of the CGST Act 2017, GST at 18% is payable under RCM by a GST-registered person who takes a residential dwelling on rent for use in the course or furtherance of business — irrespective of whether the landlord is registered or not.

Place of Supply and Time of Supply Provisions

Place of Supply

As per Section 12(3) of the IGST Act 2017 when it comes to services that are directly related to immovable property like renting the place of supply is where the property is located. This is really important because it helps figure out if CGST and SGST or IGST applies.

For example if the property is in Maharashtra and both the buyer and seller are in Maharashtra then CGST and SGST are applied. On the hand if a company based in Delhi rents an office, in Mumbai then IGST applies.

Time of Supply

As per Section 13 of the CGST Act 2017, the time of supply for services (and therefore when GST liability arises) is the earlier of:

• Date of issue of the invoice, or
• Date of receipt of payment

For RCM, time of supply is the date of payment made to the supplier, or the date immediately following 60 days from the invoice date — whichever is earlier.

Input Tax Credit (ITC) on Rental Transactions

When ITC is Available

• A tenant paying GST on commercial rent can claim ITC, provided the rented space is used for business purposes.
• A tenant paying GST under RCM on residential rent for business use can also claim ITC (after paying it to the government).
• A landlord paying GST on repair, maintenance, or professional services related to a taxable rental property can claim ITC on those inputs.

GST Registration

• Mandatory when aggregate turnover (including rent income) exceeds ?20 lakhs per annum (?10 lakhs for special category states listed in the CGST Act).
• For inter-state rental transactions, registration is mandatory regardless of turnover.

Invoice Requirements

For Landlord (Forward Charge): A registered landlord must issue a Tax Invoice under Section 31 of the CGST Act, which must include:

• GSTIN of landlord and tenant
• Property address / description of service
• SAC Code: 997212
• Taxable value, GST rate (18%), and GST amount
• Invoice number, date, and payment terms

For Tenant (RCM Self-Invoice): The tenant must issue a self-invoice as per Rule 47 read with Section 31(3)(f) of the CGST Act at the time of RCM liability.

Common Mistakes to Avoid

• Assuming all residential rent is exempt: If you're a registered business renting a flat, you owe 18% GST under RCM. The exemption applies only to unregistered individuals renting for personal residence.
• Not issuing a self-invoice under RCM: Missing or delayed self-invoices make the ITC claim non-compliant and can result in demand notices.
• Wrongly claiming ITC on personal residential rent: Section 17(5)(g) is unambiguous. Claiming ITC on rent for personal accommodation is a common audit trigger.
• Ignoring the registration threshold: Landlords with cumulative rental income above ?20 lakhs — even with no other business — must register. Missing this creates a back-tax liability with interest.
• Applying the wrong tax type (CGST/SGST vs IGST): When property is in one state and the tenant is registered in another, IGST applies. Applying CGST + SGST in such cases is a classification error.

CA Dhiraj Ostwal is a practicing Chartered Accountant in Pune and founder of CA Dhiraj Ostwal and Associated. For any queries on GST compliances ITC optimization and Tax Litigation, connect CA Dhiraj Ostwal