GST on Rent: Residential vs Commercial Property Rules in 2026
GST on rent is charged at 18% on commercial property and applies under the reverse charge mechanism when a registered person rents a residential dwelling, following Notification No. 05/2022-Central Tax (Rate) effective 18 July 2022. For FY 2025-26, landlords earning above ₹20 lakh aggregate turnover must register for GST and charge tax on commercial rent, while residential rent to unregistered individuals remains fully exempt. This blog covers every rule that property owners, tenants, and tax professionals need to know: GST rates, ITC eligibility, TDS interplay under Section 194-I, RCM obligations, composition scheme restrictions, and penalties for non-compliance.
- Commercial property rent attracts 18% GST under forward charge; landlords with turnover above ₹20 lakh must register
- Residential rent to a GST-registered tenant attracts 18% GST under reverse charge (RCM) per Notification 05/2022
- Residential rent to an unregistered individual for personal residence is fully exempt from GST
- ITC on rent is available only when the property is used for business, not personal consumption (Section 17(5))
- TDS under Section 194-I at 10% applies on rent above ₹2,40,000 per year, calculated on the pre-GST amount
What is GST on Rent? Definition and Legal Framework
GST on rent is the Goods and Services Tax levied on the supply of service by way of renting immovable property, classified under SAC code 9972 of the CGST Act, 2017. It applies at 18% on commercial property rent and, since 18 July 2022, on residential property rent to registered persons under reverse charge.
Renting of immovable property is treated as a "supply of service" under Section 7 of the Central Goods and Services Tax Act, 2017. This means every rupee of rent a landlord earns for leasing out shops, offices, warehouses, or even a residential flat to a registered business qualifies as a taxable event. The distinction between commercial and residential property determines who pays the tax, through which mechanism, and whether Input Tax Credit is available. Before 18 July 2022, residential rent was entirely outside the GST net. The 47th GST Council meeting changed that by bringing registered tenants into the reverse charge fold, creating a dual framework that property owners and businesses must understand to stay compliant.
Governed by the Central Goods and Services Tax Act, 2017, Sections 7, 9, 12(3), 16, and 17(5). Key notifications: Notification No. 12/2017 (exemption), Notification No. 04/2022 (exemption withdrawal), and Notification No. 05/2022 (RCM). Administered by the Central Board of Indirect Taxes and Customs (CBIC) through the GST portal at www.gst.gov.in.
GST on Commercial Property Rent: Rules for 2026
Commercial property rent has been taxable under GST since 1 July 2017, the date GST was introduced in India. There has never been an exemption for commercial rent under the GST regime. If you own a shop, office space, warehouse, godown, or any non-residential property and lease it out, you are supplying a taxable service.
Who Must Pay and at What Rate?
The landlord (supplier) charges 18% GST on commercial rent through the forward charge mechanism. For intra-state transactions, this splits into 9% CGST and 9% SGST. For inter-state transactions (landlord registered in one state, property in another), 18% IGST applies. The landlord must issue a tax invoice mentioning the SAC code 9972, GSTIN, and the GST breakup. So if your monthly rent is ₹1,00,000, you collect ₹18,000 as GST, making the total ₹1,18,000.
Registration Threshold for Landlords
GST registration is mandatory only when the landlord's aggregate turnover exceeds ₹20 lakh per financial year (₹10 lakh for Manipur, Mizoram, Nagaland, Tripura, Meghalaya, Arunachal Pradesh, Sikkim, and Uttarakhand). Below this threshold, the landlord is not required to register or collect GST. "Aggregate turnover" includes the value of all taxable supplies, exempt supplies, exports, and inter-state supplies, not just rental income.
Many landlords assume the ₹20 lakh limit applies only to rental income. It does not. If a landlord earns ₹12 lakh from a consulting business and ₹10 lakh from commercial rent, the aggregate turnover is ₹22 lakh, and GST registration becomes mandatory. Failure to register attracts a penalty of ₹10,000 or the tax due, whichever is higher, under Section 122 of the CGST Act.
GST on Residential Property Rent: The RCM Framework
Residential rent has a more nuanced treatment. Before 18 July 2022, all residential rent for residential use was exempt from GST, regardless of who the tenant was. The 47th GST Council meeting changed the rules significantly by introducing reverse charge on residential rent paid to registered persons.
What Changed After Notification No. 04/2022?
Notification No. 04/2022-Central Tax (Rate) dated 13 July 2022 amended Serial No. 12 of Notification No. 12/2017. The exemption entry now reads: "Services by way of renting of residential dwelling for use as residence except where the residential dwelling is rented to a registered person." This single word, "except," brought thousands of corporate tenants into the GST net overnight. Any company, LLP, proprietorship, or individual holding a GSTIN who rents a residential property must now account for GST, even if the property is used purely for living.
How Reverse Charge Works on Residential Rent
Under Notification No. 05/2022-Central Tax (Rate), the tenant (registered person) pays 18% GST on residential rent through the reverse charge mechanism. The landlord does not charge GST on the invoice, regardless of whether the landlord is registered or unregistered. The tenant must:
- Self-assess the GST: Calculate 18% on the monthly rent amount
- Generate a self-invoice: Since the landlord does not issue a GST invoice, the tenant creates one
- Report in GSTR-3B: Declare the RCM liability in Table 3.1(d) of GSTR-3B
- Pay the tax: Deposit GST through electronic cash ledger (ITC cannot be used to pay RCM liability)
- Claim ITC: If eligible (property used for business, not personal consumption), claim ITC in Table 4A of GSTR-3B
Stay GST Compliant on Rental Income
Get expert help with GST registration, return filing, and RCM compliance for rental transactions, starting at ₹1,499 per month.
File GST Returns with Expert SupportResidential vs Commercial Rent: Complete GST Comparison Table
The GST treatment of rent varies based on three factors: the type of property (residential or commercial), the registration status of the landlord and tenant, and the end use of the property. Here is every scenario in one table.
| Scenario | Property Type | Landlord Status | Tenant Status | Use of Property | GST Applicable? | Mechanism | ITC Available? |
|---|---|---|---|---|---|---|---|
| 1 | Commercial | Registered | Registered/Unregistered | Business | Yes, 18% | Forward Charge | Yes (business use) |
| 2 | Commercial | Registered | Registered/Unregistered | Residence | Yes, 18% | Forward Charge | No (personal use) |
| 3 | Commercial | Unregistered | Any | Any | No | N/A | N/A |
| 4 | Residential | Any | Registered | Residence | Yes, 18% | Reverse Charge | No (personal use) |
| 5 | Residential | Any | Registered | Business | Yes, 18% | Reverse Charge | Yes (business use) |
| 6 | Residential | Registered | Unregistered | Business | Yes, 18% | Forward Charge | N/A |
| 7 | Residential | Registered | Unregistered | Residence | Exempt | N/A | N/A |
| 8 | Residential | Unregistered | Unregistered | Any | No | N/A | N/A |
Based on our experience helping 10,000+ businesses with GST compliance, the most common confusion arises in Scenario 4: a company renting a residential flat for an employee's personal stay. Many businesses assume no GST applies because the use is residential. That is incorrect. The tenant's registration status triggers RCM, not the end use. The ITC, however, is blocked because the property serves personal consumption.
Input Tax Credit (ITC) on Rent: When You Can and Cannot Claim
ITC eligibility on rent depends entirely on how the property is used by the recipient, not on whether the property is commercial or residential. This is a critical distinction that trips up many taxpayers and even a few accountants.
When ITC is Allowed
ITC on rent is available when the rented property is used in the course or furtherance of business by the registered recipient. This includes office space, warehouses, retail shops, co-working spaces, and residential property rented for business operations (such as a guest house for clients). The conditions under Section 16 of the CGST Act, 2017 must be met: the recipient must hold a valid tax invoice, the goods or services must be received, the supplier must have deposited the tax, and the return (GSTR-3B) must be filed.
When ITC is Blocked
ITC is blocked under Section 17(5)(g) of the CGST Act for goods or services used for personal consumption. If a company rents a flat for an employee to live in, the GST paid under RCM cannot be claimed as ITC. The same rule applies if a proprietor rents a residential flat as their personal residence while holding GST registration. The rule is straightforward: personal use = no ITC, business use = full ITC.
| Situation | Property Type | Use | ITC Eligible? | Reason |
|---|---|---|---|---|
| Office space for operations | Commercial | Business | Yes | Section 16 conditions met |
| Warehouse for stock | Commercial | Business | Yes | Used in furtherance of business |
| Flat for employee stay | Residential | Personal | No | Section 17(5)(g) blocks ITC |
| Guest house for clients | Residential | Business | Yes | Business use, not personal |
| Director's personal flat | Residential | Personal | No | Personal consumption |
| Co-working space | Commercial | Business | Yes | Business operations |
TDS on Rent Under Section 194-I and Its Interaction with GST
TDS and GST are two separate obligations on rental transactions. Many landlords and tenants get confused about how these overlap. The short answer: they do not overlap at all. Each operates under a different Act, with different deductors, rates, and return filings.
TDS Rates and Thresholds
Section 194-I of the Income Tax Act, 1961 requires the payer (tenant) to deduct TDS on rent when the total annual rent exceeds ₹2,40,000. The rates are:
- 2% for rent of plant, machinery, or equipment
- 10% for rent of land, building, furniture, or fittings
TDS must be deposited with the government by the 7th of the following month. The deductor files quarterly TDS returns in Form 26Q.
How to Calculate TDS When GST is Charged
Per CBDT Circular No. 23/2017, TDS under Section 194-I is calculated on the rent amount excluding GST, provided the GST is separately shown in the invoice. For example, on a monthly rent of ₹50,000 with 18% GST (₹9,000), TDS at 10% applies on ₹50,000 only, not on ₹59,000. The TDS amount is ₹5,000. If the invoice does not separate GST, TDS applies on the full ₹59,000 (TDS = ₹5,900). Always insist on a GST-separated invoice.
| Component | With GST Separated | Without GST Separated |
|---|---|---|
| Monthly Rent | ₹50,000 | ₹50,000 |
| GST at 18% | ₹9,000 | Included in lump sum |
| Total Invoice | ₹59,000 | ₹59,000 |
| TDS Base Amount | ₹50,000 | ₹59,000 |
| TDS at 10% | ₹5,000 | ₹5,900 |
| Net Payment to Landlord | ₹45,000 + ₹9,000 GST | ₹53,100 |
Failure to deduct TDS under Section 194-I attracts disallowance of 30% of the rent expense under Section 40(a)(ia) of the Income Tax Act. Additionally, interest at 1% per month (for non-deduction) or 1.5% per month (for non-deposit after deduction) applies from the due date. For rent of ₹6,00,000 per year, non-deduction means ₹1,80,000 of the expense is disallowed.
Need Help with TDS and GST on Rental Income?
Our tax experts handle GST return filing, TDS compliance, and rental income tax planning for property owners across India.
Get Expert Tax Filing SupportGST Registration Requirements for Landlords and Tenants
Whether you need GST registration for rental transactions depends on your role (landlord or tenant), the type of property, and your aggregate turnover. Here is a clear breakdown.
When a Landlord Must Register
A landlord must obtain GST registration when aggregate turnover from all business activities (not just rent) exceeds ₹20 lakh. For landlords earning only rental income from commercial property, this means monthly rent above ₹1,66,667 triggers mandatory registration. The application is filed through the GST portal using Form GST REG-01, and registration is typically granted within 7 working days.
When a Tenant Has RCM Obligations
A tenant who is already GST-registered for any business has automatic RCM obligations on residential rent. No separate registration is needed for RCM. The tenant simply reports the RCM liability in their existing GSTR-3B return. This applies regardless of the rent amount, there is no threshold for RCM.
Landlords with turnover below ₹20 lakh can opt for voluntary GST registration. This is beneficial when the landlord incurs significant expenses on property maintenance, renovation, or professional services, as registration allows ITC claims on these costs. For a property with ₹3 lakh annual maintenance and ₹54,000 GST paid on it, voluntary registration recovers ₹54,000 through ITC.
Composition Scheme and GST on Rent
The composition scheme under Section 10 of the CGST Act offers simplified compliance for small taxpayers with turnover up to ₹1.5 crore (₹75 lakh for special category states). But it comes with restrictions that directly affect rental transactions.
A composition dealer cannot charge GST on outward supplies, including rent. If a registered landlord opts for the composition scheme, they pay tax at a flat rate on their total turnover (1% for manufacturers, 5% for restaurants, 6% for other service providers) but cannot issue a tax invoice or collect GST from tenants. The tenant, therefore, cannot claim ITC on rent paid to a composition dealer because no tax invoice is issued.
For landlords whose primary income is rental, the composition scheme is generally not recommended. The 6% flat tax on turnover (for service providers) is significantly lower than 18%, but losing the ability to pass on ITC to tenants makes the property less attractive for business tenants who want to claim credit.
GST on Different Types of Property Leases
Not all rental arrangements are created equal under GST. The tax treatment varies based on the type of lease, its duration, and whether the property is government-owned or privately held.
Short-Term vs Long-Term Leases
Short-term commercial leases (month-to-month or annual) attract standard 18% GST on every rent payment. Long-term leases with upfront premiums also attract 18% GST on the premium amount. However, an exemption exists for one-time upfront amounts (premium or salami) for long-term leases of 30 years or more of industrial plots by state or central government entities, per Notification No. 12/2017. This exemption does not extend to private landlords.
Subletting and Sub-Leasing
Subletting creates a separate supply chain under GST. The original landlord charges GST to the primary tenant, and the primary tenant (now sub-lessor) charges GST to the sub-tenant. Both transactions are independent taxable supplies. ITC flows through the chain: the sub-lessor can claim ITC on the GST paid to the original landlord and collect GST from the sub-tenant.
Government-Owned Properties
When a government or local authority rents out immovable property to a registered person, the tenant pays GST under reverse charge per Notification No. 13/2017-Central Tax (Rate). This applies to all government-owned properties, not just residential ones.
Place of Supply Rules for Rental Transactions
Getting the place of supply wrong means paying the wrong type of tax (CGST + SGST instead of IGST, or vice versa), which creates complications during return filing and ITC reconciliation.
Under Section 12(3) of the IGST Act, 2017, the place of supply for services relating to immovable property is the location of the immovable property. This is one of the simplest place-of-supply rules in GST. If a landlord registered in Maharashtra rents out a property located in Maharashtra to a tenant in Karnataka, CGST + SGST applies (intra-state). If the same landlord rents a property located in Karnataka, IGST applies (inter-state). The property's location determines the tax type, not the landlord's or tenant's location.
Register for GST as a Property Owner
Get GST registration in 3 to 7 working days with complete documentation support, starting at ₹1,499.
Register for GST NowGST Return Filing for Rental Income
Both landlords and tenants have specific GST return filing obligations depending on the charge mechanism (forward or reverse). Missing these deadlines attracts late fees of ₹50 per day (₹25 CGST + ₹25 SGST), capped at ₹5,000 per return.
Landlord's Filing Obligations (Forward Charge)
- GSTR-1 (by 11th of next month): Report rent invoices as outward supply with tenant's GSTIN, SAC 9972, and tax breakup
- GSTR-3B (by 20th of next month): Pay GST liability in Table 3.1(a) and claim ITC on business expenses in Table 4A
- GSTR-9 (annually by 31 December): Consolidate all rental transactions for the financial year
Tenant's Filing Obligations (Reverse Charge)
- GSTR-3B: Report RCM liability in Table 3.1(d), pay through electronic cash ledger
- Claim ITC: If eligible, claim in Table 4A(3) of GSTR-3B after payment
- Self-invoice: Issue a self-invoice for every RCM transaction for record-keeping
You can track your filing status and deadlines through the GST portal. For businesses managing multiple rental properties, our GST return filing service ensures timely compliance and accurate RCM reporting.
Penalties and Interest for Non-Compliance
The penalty framework for GST non-compliance on rent is strict. Here is what landlords and tenants risk if they miss their obligations.
| Violation | Penalty/Consequence | Legal Reference |
|---|---|---|
| Not registering when turnover exceeds ₹20 lakh | ₹10,000 or tax due, whichever is higher | Section 122, CGST Act |
| Late filing of GSTR-3B | ₹50 per day (₹25 CGST + ₹25 SGST), max ₹5,000 | Section 47, CGST Act |
| Non-payment of GST on rent | 18% interest per annum on unpaid amount | Section 50, CGST Act |
| Not paying RCM on residential rent | Tax amount + 18% interest + penalty up to 100% of tax | Sections 50 and 122, CGST Act |
| Issuing invoice without GST registration | ₹25,000 penalty | Section 122(1)(xi), CGST Act |
| TDS non-deduction under Section 194-I | 30% rent expense disallowed + 1% interest per month | Section 40(a)(ia), IT Act |
Exemptions and Special Cases in GST on Rent
Not every rental transaction attracts GST. Knowing the exemptions can save landlords and tenants significant tax outgo.
Fully Exempt Rentals
- Residential property to unregistered individuals for residence: No GST applies (Notification No. 12/2017, Serial No. 12)
- Religious and charitable trust properties: Exempt if room rent is below ₹1,000 per day, shop rent below ₹10,000 per month, and community hall rent below ₹10,000 per day
- Long-term industrial plots from government: Upfront premium for 30+ year leases by government/local authority entities is exempt
Threshold-Based Exemptions
- Aggregate turnover below ₹20 lakh: Landlord not required to register or charge GST on commercial rent
- Special category states: Threshold reduced to ₹10 lakh for Manipur, Mizoram, Nagaland, Tripura, Meghalaya, Arunachal Pradesh, Sikkim, and Uttarakhand
NRI Landlords
When an NRI (Non-Resident Indian) rents out property in India, the GST treatment depends on the landlord's registration status. If the NRI is registered, standard forward charge rules apply. If unregistered, and the tenant is registered, the tenant pays GST under reverse charge per Section 9(3) of the CGST Act for services received from a person located outside India. NRI landlords earning above ₹20 lakh from Indian rental income should obtain GST registration.
GST on Rent vs Pre-GST Service Tax: What Changed?
The shift from service tax to GST changed both the rate and the compliance structure for rental income. Here is a side-by-side comparison.
| Parameter | Service Tax (Before July 2017) | GST (July 2017 Onwards) |
|---|---|---|
| Tax Rate | 15% (including cesses) | 18% |
| Residential Rent | Exempt for residential use | Exempt for unregistered tenants; 18% RCM for registered tenants (from July 2022) |
| Commercial Rent | 15% service tax | 18% GST forward charge |
| Registration Threshold | ₹10 lakh per annum | ₹20 lakh per annum |
| ITC Availability | Limited (CENVAT credit only on services) | Full ITC on goods and services for business use |
| Return Filing | Semi-annual (ST-3) | Monthly/Quarterly (GSTR-1, GSTR-3B) |
| Reverse Charge on Residential | Not applicable | Applicable from 18 July 2022 |
The 3 percentage-point increase from 15% to 18% sounds steep, but the expanded ITC mechanism under GST means businesses that use rented premises for operations often have a lower effective tax cost. Under service tax, a manufacturer renting a factory could not set off service tax against excise duty. Under GST, the 18% GST on factory rent is fully creditable against the GST on finished goods.
Based on our experience processing GST registrations and returns for property owners, the biggest practical change post-GST is the reverse charge on residential rent. Before July 2022, companies routinely rented flats for employees without any GST consideration. Now, every such transaction requires RCM accounting, self-invoicing, and GSTR-3B reporting. Companies with 50+ rented employee flats face a real compliance burden that needs dedicated tracking.
Practical Scenarios: How GST Applies to Real Rental Situations
Theory is useful, but real situations are where the confusion happens. Here are five practical scenarios property owners and tenants face every day.
Scenario 1: Freelancer Renting a Co-Working Space
A freelance graphic designer with GST registration (annual turnover ₹25 lakh) rents a desk at a co-working space for ₹15,000 per month. The co-working operator charges 18% GST (₹2,700), making the total ₹17,700. The freelancer claims ₹2,700 as ITC every month because the space is used for business. If you are a freelancer wondering about your GST obligations, check our GST guide for freelancers.
Scenario 2: IT Company Renting a Flat for an Employee
An IT company (registered under GST) rents a 2BHK flat in Bangalore for ₹30,000 per month for an employee's personal residence. The company pays 18% GST (₹5,400) under RCM. Total monthly cost: ₹35,400. ITC of ₹5,400 is not available because the flat is used for personal consumption under Section 17(5)(g). The company also deducts TDS at 10% on ₹30,000 = ₹3,000 per month if annual rent exceeds ₹2,40,000.
Scenario 3: Shop Owner Below ₹20 Lakh Turnover
A retired individual owns a small shop and earns ₹15 lakh per year in rent. Since aggregate turnover is below ₹20 lakh, no GST registration is required. The tenant cannot claim ITC because the landlord is unregistered and does not issue a GST invoice. If the shop rent increases to ₹22 lakh next year, the landlord must register within 30 days of crossing the threshold.
Scenario 4: Registered Proprietor Renting a Flat for Personal Use
A proprietor registered under GST rents a flat for ₹20,000 per month as their personal residence. Since the tenant is a registered person, GST at 18% (₹3,600) applies under RCM. The proprietor must self-invoice and pay ₹3,600 monthly. ITC is blocked because the flat is used for residence, not business. Many proprietors miss this obligation entirely.
Scenario 5: Warehouse Rent with GST and TDS
A manufacturing company rents a warehouse for ₹1,00,000 per month. The landlord (registered) charges 18% GST (₹18,000). Total invoice: ₹1,18,000. The company deducts TDS at 10% on ₹1,00,000 = ₹10,000. Net payment: ₹90,000 + ₹18,000 GST = ₹1,08,000. The company claims full ITC of ₹18,000 monthly. The landlord reports ₹1,00,000 as gross rent, adjusts ₹10,000 TDS in income tax return.
Get Your GST Returns Filed Correctly
Avoid penalties and ITC mismatches. Our chartered accountants handle GST filing for property owners and tenants across India.
Start GST Return FilingChecklist: GST Compliance for Property Owners in 2026
Use this checklist to ensure you are fully compliant with GST rules on rental income for FY 2025-26.
- Check aggregate turnover: If all income sources (rent + other business) exceed ₹20 lakh, register for GST immediately
- Classify your property: Commercial properties require forward charge GST; residential properties follow RCM rules
- Issue proper invoices: Include GSTIN, SAC code 9972, HSN/SAC summary, and separate GST breakup (CGST + SGST or IGST)
- File GSTR-1 by the 11th: Report all rental invoices as outward supplies
- File GSTR-3B by the 20th: Pay GST liability and claim eligible ITC
- Maintain records: Keep rent agreements, invoices, bank statements, and TDS certificates for 6 years
- Reconcile ITC: Match ITC claims with GSTR-2B data to avoid notices
- File GSTR-9 by 31 December: Consolidate annual rental income and tax paid
- Track TDS: Verify TDS deposits by tenants in Form 26AS on the Income Tax portal
- Review lease agreements: Ensure agreements specify whether rent is inclusive or exclusive of GST
Summary
GST on rent operates through two distinct mechanisms: 18% forward charge on commercial property (paid by the landlord) and 18% reverse charge on residential property rented to GST-registered tenants (paid by the tenant). Residential rent to unregistered individuals remains exempt. ITC is available only when the rented property is used for business purposes, not personal consumption. TDS under Section 194-I at 10% applies independently on rent exceeding ₹2,40,000 per year, calculated on the pre-GST rent amount. For property owners navigating these overlapping obligations, professional support ensures zero penalties and full ITC recovery. If you need help with GST registration or GST return filing for rental income, our team of chartered accountants is ready to assist.
Complete GST Support for Landlords and Tenants
From registration to annual returns, get end-to-end GST compliance for your rental income at ₹1,499 per month.
Get Started with GST Filing
