GST on Rent: Tax Rate on Commercial, Residential Property

In India, Goods and Services Tax (GST) encompasses a wide range of goods and services. Property rentals, being a service, are subject to GST. However, GST on Rent is generally not applicable to residential properties used for personal living purposes. Conversely, renting out commercial properties, such as offices or shops, attracts an 18% GST on Rent. Landlords are responsible for collecting GST on Rent and remitting the same.

GST on Rent applicable to various properties-:

Commercial Properties: GST on Rent is applicable at a standard rate of 18% on the rent of commercial properties such as offices, shops, warehouses, and other spaces used for business purposes.

1. Residential Properties (for Business Use): If a residential property is used for business purposes (e.g., running a guest house), GST on Rent at the rate of 18% applies. Renting to businesses or for commercial purposes attracts GST on Rent, even if the property is used for residential purposes by the business.
2. Residential Properties (for Personal Use): Rent from residential properties used for personal living purposes is generally exempt from GST on Rental income. GST on Rent is exempted for residential property rentals only when the property is rented to an individual for their personal use.

GST Registration requirement for GST on Rent:

Landlords with an annual turnover exceeding ₹20 lakh from all business activities, including rental income, are required to register for GST. However, landlords with total income including Rent income below Rs. 20 lakh per annum do not have to pay taxes as per the GST Act as the GST registration threshold limit is Rs. 20 lakh per annum and Rs. 10 lakh per annum for special category states.

Input Tax Credit (ITC) for GST on Rent:

Businesses renting commercial properties, including situations where a residential property is used for commercial purposes, may be eligible to claim Input Tax Credit (ITC) on the GST on rent. ITC allows businesses to offset the payment of GST on Rent against the GST payable on their output under following conditions-

• Commercial Use: ITC is primarily available for GST on rent paid for commercial properties or residential properties used for commercial purposes.
• GST Payment: The amount of GST on Rent must be duly paid to the government.
• Compliance: All other conditions for claiming ITC under the GST Act must be fulfilled.
• ITC for Repairs and Renovations: GST paid on expenses related to repairs, maintenance, brokerage, and other similar services for rented properties is generally eligible for ITC. ITC is not allowed for expenses that are capitalized, such as those incurred in the construction or significant renovation of the property. Section 17(5) of the CGST Act specifically prohibits ITC on expenses related to the construction of immovable property, even if used for business purposes.

Exemptions in GST on Rent:

Religious and Charitable Trusts: Registered religious and charitable trusts may be exempt from GST on rent for certain properties provided the following conditions are met:

• Room Rent: Daily rent should be below ₹1,000.
• Shop Rent: Monthly rent should be less than ₹10,000.
• Open Area/Community Hall Rent: Daily rent should be below ₹10,000.

Landlord Responsibilities:

• Landlords are responsible for:
• Collecting GST on rent from tenants.
• Filing GST returns on time.
• Paying the applicable GST to the government.
• Tenants are also responsible for paying the rent inclusive of GST.

Important Considerations:

• GST Impact on Tenants: The inclusion of GST in the rent can increase the overall cost of renting commercial property for businesses.
• Compliance: Landlords must ensure compliance with all GST regulations to avoid penalties.
• Record-Keeping: Maintaining accurate records of all rental income and GST payments is essential for tax compliance.

Tax Deduction at Source (TDS) on Rent

Under Section 194I of the Income Tax Act, a 10% TDS is applicable on rent payments exceeding ₹2.40 lakh per annum. This limit is increased to ₹6 lakh in budget 2025 applicable from F.Y. 2025-26. This is applicable to both residential and commercial properties. Importantly, the TDS amount itself is not subject to GST.