GST on Rent

GST on rent depends on the type of property, purpose of use, GST registration status of the landlord and tenant, and whether GST is payable under forward charge or reverse charge.

In most cases, rent from commercial property is taxable at 18% GST. Residential property used only for residential accommodation is generally exempt. However, if a residential dwelling is rented to a GST-registered person, GST may apply under the reverse charge mechanism.

For rent-related GST classification, real estate rental services generally fall under SAC 9972. For rental or leasing services involving non-residential property, SAC 997212 is commonly used.

GST on Rent: Quick Summary

Impact of GST on Rental Income

With the adoption of GST, accumulating taxes from different sectors has now become very structured and convenient. Have a look at the influences of GST on rental income, which are as follows:

Rules of Pre-GST

The owner of the property should register service tax before the adoption and introduction of GST if his overall taxable service is more than Rs. 10 lakhs per year, including all the rental income from all of his properties. On the other side, if his taxable earnings from all properties do not exceed Rs. 10 lakhs, then the landlord does not need to pay service tax. Another important rule is that only commercial rental properties would be charged service tax @ 15%. This rule is also implemented on a residential space that has been rented out for commercial use. When rental earnings are generated from residential properties, it does not levy service tax but 15% of service tax is applicable on rental income from commercial properties.

Rules of Post GST

A crucial change has been found in the process of tax collection after the introduction of GST. It has uniformed and streamlined a plethora of sectors which thereby affected rental earnings at the same time. As GST on residential property has been exempted out, you do not have to pay any GST. In addition, after the introduction of GST, the GST turnover limit applicability has been listed in the range from Rs. 10 lakhs to Rs. 20 lakhs for any kind of renting or lease and businesses.

GST on Rent Rules in India

Under GST, renting of immovable property is treated as a supply of service. The GST treatment depends mainly on whether the property is used for residential or business purposes.

For commercial property, GST is generally applicable at 18%. This includes rent from shops, offices, warehouses, godowns, factories, commercial buildings and business premises.

For residential property, GST is not applicable when the property is rented for personal residential use. However, GST applies under reverse charge when a residential dwelling is rented to a GST-registered person.

From 10 October 2024, GST under reverse charge also applies when an unregistered landlord rents any property other than a residential dwelling to a GST-registered tenant. In such cases, the tenant has to pay GST under RCM.

The key point is: GST is not decided only by the property type. It is decided by the use of the property and the GST registration status of the landlord and tenant.

GST on Commercial Property

The new rules have been introduced associating with the GST applicability on commercial rent. GST on commercial property is applicable only when the rental income from commercial properties is more than Rs. 20 lakhs. As mentioned above, renting out a residential property for the purpose of residential is exempted from GST. However, a GST rate of 18% is implied on any kind of renting out of the immovable property for business as it is considered as a supply of service. Moreover, this comprises renting out residential and commercial property for commercial reasons no matter if it is partially or fully.

3 Major Points to Remember about GST on Commercial Rental Income

• If a rental income from commercial property is more than Rs. 20 lakhs per annum, it would be leviable to GST.

• The SGST would always be levied on the place of supply where the actual property is located even though you live in another place.

• If the rental income from a commercial property or residential property depending on the nature of the property is less than Rs. 20 lakh per year, it would not be included in the payment of GST.

HSN/SAC Code for Rent

For GST on rent, the correct classification is usually referred to as SAC code, because renting is treated as a service under GST.