Table of Contents
- Rental Income Taxation Pre-GST
- Applicability of GST on Rental Income
- Exemption for Residential Rentals for Living
- GST Registration Thresholds for Rental Income
- Place of Supply Provisions for Rental GST
- GST Treatment for Commercial Rentals
- How to Calculate GST on Rented Property
- Eligibility to Claim ITC on Rental Expenses
- TDS Provisions on Rental Income
- Key Takeaways for Landlords and Tenants
- Frequently Asked Questions
The rollout of Goods and Services Tax (GST) in 2017 significantly altered the Impact of GST on Rent in India. For landlords earning rental income and businesses taking property on rent, it is essential to understand GST implications to ensure tax compliance and maximize savings. This comprehensive guide written by experts from filingwala.com examines GST treatment on residential & commercial rentals, registration requirements, place of supply rules, calculation methodology, input tax credits eligibility, and other crucial aspects every landlord and tenant should know.
Rental Income Taxation Pre-GST
In the pre-GST regime before 2017, landlords with over ₹10 lakh total annual rental income from all properties had to obtain service tax registration and pay 15% service tax only on commercial rental income. No service tax applied on residential property rentals. The higher ₹20 lakh GST registration threshold (₹10 lakh in special category states) exempts many more small landlords from tax compliance.
Applicability of GST on Rental Income
As per GST law, renting an immovable property is considered a service. GST applies only if the property is rented to a business, either wholly or partially for business use. Renting a residential property solely for living purposes does not attract GST. Whereas a residential property used by registered tenant for business purpose will be liable to pay GST at 18%, irrespective of whether the landlord is GST-registered or not. Commercial property rentals attract 18% GST as it qualifies as a supply of service.
Exemption for Residential Rentals for Living
A key update came through the 48th GST Council meeting, whereby renting a residential property to a registered person for use as their own residence is exempt from GST. However, the rental income must be received in the landlord’s personal capacity, not as a business transaction.
GST Registration Thresholds for Rental Income
Landlords with over ₹20 lakh annual rental income from properties that are rented out to businesses are required to register under GST and comply with tax filings and payments. This ₹20 lakh registration threshold excludes rental income earned from leasing residential properties solely for living purposes.
For properties rented out for business use, there is no minimum rental income threshold for GST registration – GST registration and compliance is mandatory irrespective of total rental income.
Place of Supply Provisions for Rental GST
The rental property’s location determines whether CGST + SGST (intrastate supply) or IGST (interstate supply) will be applicable:
- If landlord and rented property are located in different states – IGST at 18% will apply
- If landlord and tenant are registered in the same state where the rented property is located – CGST + SGST at 9% each will apply
- If landlord is registered in the state where property is located but tenant is registered in a different state – CGST+SGST applies, though tenant cannot claim corresponding input tax credit
GST Treatment for Commercial Rentals
For commercial property rentals, 18% GST (either CGST + SGST or IGST) applies on the total rental amount. Invoices issued to tenants should charge and collect GST periodically based on the rent amount payable for that period.
Certain exemptions exist if the owner is a registered charitable or religious trust renting out space in a religious structure meant for public use, with caps on daily/monthly rent.
How to Calculate GST on Rented Property
The landlord must actively calculate GST on the total rental amount charged to the tenant for each tax period. For instance, in the case of a monthly rent of ₹1 lakh, the landlord must actively collect 18% GST on the full ₹1 lakh for every month, totaling ₹18,000 to be collected as GST each month. This results in a total monthly rental invoice of ₹1 lakh for rent, plus ₹18,000 for GST, amounting to ₹1.18 lakhs.s.
Eligibility to Claim ITC on Rental Expenses
Tenants may claim input tax credit (ITC) for the GST paid on their rentals, provided they meet all the eligibility conditions. The sole exception is when CGST and SGST were paid in a different state by the landlord, but the tenant is registered in a different state. In such situations, the tenant cannot claim the ITC for the CGST and SGST components paid.
Landlords can avail limited Input Tax Credit (ITC) on expenses like maintenance charges and brokerage commissions for their rented properties, provided they refrain from capitalizing these costs in their accounting records. However, it’s crucial to remember that ITC is not permitted on the construction expenses of rented properties.
TDS Provisions on Rental Income
Tenants must deduct 5% TDS from the rent paid if the total annual rent for a property exceeds ₹2.4 lakh, regardless of whether it is residential or commercial property. Additionally, there is no need to pay any additional GST on the TDS deducted from rental payments..
Key Takeaways for Landlords and Tenants
- No GST applies on residential property rentals solely for living purposes
- Commercial rentals attract 18% GST – either CGST + SGST or IGST depending on place of supply
- Landlords with >₹20 lakh annual rental income need GST registration
- For properties rented for business use, GST registration is compulsory irrespective of rental income
- Place of supply rules determine whether CGST+SGST (intrastate) or IGST (interstate) applies
- Tenants can claim ITC for GST paid on rentals, with some conditions
- Landlords can claim limited ITC on maintenance charges, brokerage etc. if costs are not capitalized in accounts
- 5% TDS must be deducted if annual rental payments exceed ₹2.4 lakh
Thus, gaining clarity on GST guidelines is essential for both property owners and tenants to remain compliant and maximize tax efficiency. Proper planning and record keeping enables optimizing available credits and deductions. Consulting taxation experts helps apply rules precisely based on specific circumstances.
Frequently Asked Questions
Q1. Does GST apply if I rent my residential property to a tenant for living purposes?
A1. No, renting out residential property solely for living attracts no GST, even if it is partly used for business activities.
Q2. I have rented a warehouse in Karnataka. Can I claim CGST+SGST credit if I am registered in Maharashtra?
A2. No, you can claim ITC only for the IGST component paid on renting the Karnataka property, not the CGST+SGST portions.
Q3. I pay ₹50,000 as monthly rent for my office. How much GST will I need to pay?
A3. You will have to pay 18% GST on ₹50,000 which is ₹9,000. So your total rental invoice will be ₹59,000 including ₹50,000 rent + ₹9,000 GST.
Q4. As a landlord, can I claim ITC on property brokerage charges?
A4. You can claim Input Tax Credit (ITC) on expenses like brokerage for rented out properties, provided you do not capitalize them in your books of account.
Q5. Do I need to deduct TDS if I rent a residential property for self-living?
A5. No, TDS provision does not apply if you self-occupy the rented residential property. It applies only if you sub-let the property to someone else.