GST on Renting of Immovable Property : Applicability, Exemptions & Taxability
A practical guide explaining when rent for land and buildings is taxable, how exemptions apply, and the role of the reverse charge mechanism and ITC.
Introduction
Overview of GST treatment for renting of immovable property.
Under the GST framework, renting of immovable property is generally treated as a supply of service. This includes leasing, letting, licensing or granting of any right to use land or buildings for consideration. The tax outcome depends on the nature of the property, its use (residential vs commercial), and the identity/status of the parties involved.
When is GST applicable?
Key principles determining GST liability on renting.
Commercial Renting
Renting of commercial properties — shops, offices, warehouses, industrial units, co-working spaces, clinics, hotels and similar establishments — is taxable under GST. The standard rate commonly applied is 18% (9% CGST + 9% SGST). Landlords who are registered under GST must charge and remit tax when the renting constitutes a taxable supply.
Tenants who are registered businesses may be able to claim input tax credit on such rent provided the premises are used for taxable business activities.
Residential Renting (Basic Rule)
Renting of residential property for residential use — e.g., a house or flat let to an individual/family for living — is exempt from GST. This exemption applies irrespective of rent amount or landlord turnover, provided the premises are used purely as a residence. If, however, the residential property is used for business purposes, exemption is lost.
Exemptions & Special Cases
When renting remains exempt and when special rules bite.
Key exemptions
- Residential for personal use: exempt from GST.
- Charitable or specified public-purpose uses: may qualify for exemption depending on conditions.
- Government renting for public purposes: exemptions may apply in certain cases.
Security deposits & associated charges
Refundable security deposits are normally not treated as taxable consideration unless they are forfeited or adjusted against rent. Maintenance, utilities and ancillary service charges may be taxable separately depending on the provider and the taxability of the underlying renting arrangement.
Reverse Charge Mechanism (RCM) & Input Tax Credit (ITC)
Practical implications when the tenant or landlord is unregistered/registered.
Residential property used for business — RCM
A pivotal change in interpretation is that when residential property is rented to a registered business and used for business purposes (e.g., corporate lodging, guest houses, staff accommodation or offices), GST becomes payable under the Reverse Charge Mechanism (RCM). In such cases, the tenant (if registered) must discharge GST in cash and may claim ITC subject to eligibility on subsequent compliance.
Landlord registration & unregistered landlords
A landlord must register under GST when their aggregate taxable supplies (including taxable rent) exceed the registration threshold (commonly ₹20 lakh in many states). If a landlord is unregistered and renting residential property to a registered business, RCM still ensures tax collection by making the tenant liable for GST payment.
Input Tax Credit (ITC)
Businesses renting commercial premises may claim ITC on GST paid (either charged by landlord or paid under RCM) provided the rented property is used for making taxable supplies and ITC is not restricted by Section 17(5) or other blocking provisions. ITC is not available where the renting relates to exempt supplies or personal use.
Practical Scenarios & Interpretations
Common fact patterns and tax outcomes.
- Individual rents a house to family: Exempt from GST.
- Shop rented for retail: Taxable at 18%; tenant may claim ITC.
- Company rents residential flats for staff: RCM applies; tenant pays GST and may claim ITC if eligible.
- Co-working and shared office providers: Treated as taxable commercial services at 18%.
- Government renting to business: GST may apply; often RCM is relevant depending on notification.
Compliance & Registration
What landlords and tenants must do to stay compliant.
Registration, invoicing & returns
Landlords liable to register must issue tax invoices for taxable rent and file regular GST returns. Where RCM applies, tenants must pay tax in cash, maintain self-invoices and report the liability correctly in GSTR filings. Proper documentation, rent agreements, and clarity on purpose of occupation (residential vs commercial) are essential to avoid disputes.
Summary & Takeaways
The core principle is simple: commercial use of immovable property is taxable under GST while residential use for living is exempt. Key complications arise when residential premises are used for business (RCM), when landlords are unregistered, and around ancillary charges like security deposits and maintenance. Correct classification, timely registration, and careful documentation protect both landlords and tenants from penalties and help ensure ITC compliance where applicable.
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