GST on Renting of Immovable Property: Rules and Exemptions

1. Introduction

Renting of immovable property—whether residential or commercial—is one of the most important subjects under the GST framework. Since rental income forms a major source of revenue for individuals, corporations, and real estate businesses, the GST rules governing such income have a significant impact on landlords and tenants. The treatment of rent under GST depends heavily on the purpose for which the property is rented. While residential rentals enjoy broad exemptions, commercial rentals are fully taxable. This thesis provides a detailed and structured explanation of the rules, taxability, exemptions, RCM applicability, and compliance obligations for renting of immovable property under GST.

2. Definition of Renting of Immovable Property

Under GST, “renting of immovable property” includes:

• Leasing, letting, licensing, or using property
• For business, commerce, or residential purposes
• With or without transferring the right to occupy

GST considers renting as a supply of service and not as a sale of property. This classification is crucial because it determines the tax rate, the GST liability, and the manner of compliance.

3. GST Applicability: Residential vs. Commercial

The GST law makes a clear distinction between residential and commercial renting:

Residential Property: Exempt when rented for residential use.

Commercial Property: Fully taxable at 18% (9% CGST + 9% SGST) when rented for business or commercial use.

Residential Property Used for Business: Taxable because exemption applies only when the property is used as a residence.

Thus, GST depends not on the nature of the building but on the purpose of usage.

4. GST on Renting of Residential Property

Residential property rent is exempt from GST only when used for residential dwelling by an individual or family.

This means:

• No GST for houses, flats, apartments rented for living.
• Hostels, service apartments, or guest houses classified as “residential dwellings” may be exempt depending on usage.

However, GST becomes applicable when:

• A residential property is rented to a business entity
• A residential property is used as office, showroom, or guest facility
• A registered business takes the property on rent for employees or corporate stays

In these cases, the transaction becomes taxable under Reverse Charge Mechanism (RCM) from July 2022 onwards.

5. GST on Renting of Commercial Property

Commercial property rentals—such as shops, offices, godowns, warehouses, factories, malls, and commercial complexes—are taxable at 18%.

Tax is payable by:

• The landlord (forward charge), if registered
• The tenant (RCM), if landlord is unregistered and the tenant is a business (in specific cases)

Commercial renting is one of the largest contributors under GST services due to consistent rental inflows and regular compliance cycles.

6. GST on Renting to Registered Businesses (RCM Applicability)

A major change occurred when the Government notified that renting of residential property to a registered business entity attracts GST under the Reverse Charge Mechanism.

Important aspects:

• If the tenant is a registered business, GST must be paid under RCM, even if the property is residential.
• The landlord does not charge GST under invoice.
• The tenant pays GST in cash through GSTR-3B.
• ITC is allowed if the property is used for business purposes.

This provision ensures tax collection where businesses use residential accommodations for operations or employees.

7. GST Rate on Renting of Immovable Property

The standard GST rate is:

• 18% on taxable renting services
• No GST for exempt residential rents

In special cases such as renting for religious functions, public utility purposes, or charitable use, GST exemption may apply based on specific notifications.

8. GST Registration Requirement for Landlords

A landlord must register under GST when:

• Aggregate annual rental income exceeds ₹20 lakh (₹10 lakh for special category states)
• The renting service provided is taxable
• Commercial rent is earned beyond the registration limit

Residential renting for personal living use does not require registration because it is exempt.

9. Input Tax Credit (ITC) on Renting Services

ITC on renting is allowed when:

• Property is taken on rent for business use
• GST is paid under forward charge or RCM
• The rented premises are not used for exempt supplies or personal use

ITC is specifically beneficial for companies renting office space, warehouses, or industrial properties, as it reduces overall tax liability.

10. GST on Security Deposits and Maintenance Charges

Refundable security deposits are not taxable, unless adjusted against rent or other charges.

Maintenance charges, facility fees, or association charges collected by landlords become taxable if the renting service itself is taxable.

For exempt residential rents, maintenance charges may still be taxable depending on the service provider's GST status.

11. GST on Sub-Leasing and Co-Working Spaces

Sub-leasing of commercial property is taxable at 18%.

Co-working space operators often charge for:

• Seat rentals
• Shared office usage
• Utilities (electricity, internet)
• Conference room usage

All such charges fall under taxable renting services and attract GST at 18%.

12. Special Exemptions in Renting of Immovable Property

GST provides exemptions for renting when:

• Residential property is rented for living purposes
• Property is rented to government entities for official use (in specific cases)
• Property is used for charitable activities
• Religious precincts lease space for public welfare activities
• Hostels run by educational institutions (subject to conditions)

These exemptions support social welfare and government administration.

13. Compliance Obligations for Landlords and Tenants

Landlords must:

• Issue tax invoices for taxable rent
• Charge GST and report through GSTR-3B & GSTR-1
• Maintain lease agreements and rental receipts
• Keep track of exempt vs taxable rental streams

Tenants under RCM must:

• Pay GST in cash
• Claim ITC appropriately
• File GSTR-3B with RCM liability
• Maintain rent agreements and self-invoices

Non-compliance may lead to demands, penalties, and ITC denial.

14. Practical Scenarios and Interpretations

Scenario 1: Individual rents a flat to another individual for residence

→ No GST.

Scenario 2: Residential house rented to a company for office use

→ GST applicable under RCM.

Scenario 3: Commercial shop rented to a trader

→ GST @ 18% under forward charge.

Scenario 4: Co-working operator provides workspace

→ GST @ 18%.

Scenario 5: Individual earns rent below ₹20 lakh per year

→ No GST registration required.

15. Conclusion

GST on renting immovable property is structured to distinguish between residential and commercial usage. Residential rent for living remains exempt, protecting households, while commercial renting continues to be a major taxable supply under GST. Reverse charge on residential renting to registered businesses increases tax transparency. Proper classification of usage, correct invoicing, and meticulous compliance are essential for both landlords and tenants. Understanding these rules ensures accurate tax treatment, avoidance of disputes, and better financial planning for property owners and businesses alike.