Is GST Payable on Commercial and Residential Property Rent?

1. GST on rent: who pays?

The following table covers ordinary private lettings. Special exemptions, government lettings and a landlord's valid composition scheme require separate examination.

RCM means reverse charge mechanism. Being unregistered does not excuse a landlord who is legally required to obtain registration.

2. Relevant statutory definitions

Section 7 of the Central Goods and Services Tax Act, 2017 governs supply. Schedule II, paragraph 2, treats specified leases, tenancies and letting of buildings as services; paragraph 5(a) also addresses renting of immovable property.

Registered person - Section 2(94)

A person registered under Section 25, excluding a person holding only a Unique Identity Number.

Reverse charge - Section 2(98)

A mechanism under which the recipient pays tax instead of the supplier under the specified CGST or IGST charging provisions.

Aggregate turnover - Section 2(6)

The all-India value of taxable supplies, exempt supplies, exports and inter-State supplies of persons with the same PAN. It excludes GST and cess, and inward supplies taxed under reverse charge.

Consideration - Section 2(31)

Payment or other qualifying value given for a supply. A deposit is not treated as payment for the supply unless the supplier applies it as consideration.

Residential dwelling

The CGST Act does not provide a standalone definition of this expression. The property's character, the lease and its actual use matter. A home used for ordinary residence should not automatically be equated with a hotel, serviced accommodation or a commercial office.

These are explanatory summaries. Read them with the applicable rate and exemption notifications.

3. GST on commercial property rent

Rent for an ordinary shop, office, showroom or warehouse generally falls within real estate services under Heading 9972 and attracts 18% GST when taxable. Under forward charge, a regular registered landlord issues the tax invoice and pays the tax. The tenant's lack of registration does not make that supply exempt.

Unregistered landlord: the tenant may have to pay

Notification No. 09/2024-Central Tax (Rate) introduced entry 5AB in Notification No. 13/2017-Central Tax (Rate), effective 10 October 2024. It brings renting of immovable property other than a residential dwelling by an unregistered person to a registered person within reverse charge, subject to the later composition exclusion.

This means a regular registered business can owe GST on shop rent even when the landlord is legitimately below the registration threshold. There is no separate minimum monthly rent in this reverse-charge entry.

Composition tenants: a specific exclusion

Notification No. 07/2025-Central Tax (Rate) excludes composition taxpayers from entry 5AB from 16 January 2025. CBIC Circular No. 245/02/2025-GST regularised the intervening period, 10 October 2024 to 15 January 2025, on an "as is where is" basis. This is not a blanket refund entitlement.

The exclusion concerns this particular commercial-rent entry. It does not remove the separate residential-dwelling reverse charge, and it does not exempt rent charged by a regular registered commercial landlord. A landlord validly using an eligible composition scheme follows that scheme's requirements and cannot separately collect ordinary GST as a regular taxpayer.

4. When is residential rent exempt?

Entry 12 of Notification No. 12/2017-Central Tax (Rate), as amended, exempts renting of a residential dwelling for use as a residence, except where it is rented to a registered person. For an ordinary unregistered individual taking a home for personal residence, this exemption generally applies even if the landlord is GST registered.

For example, a flat rented to an unregistered family for their home is generally exempt. The same flat rented for an office does not satisfy the residential-use condition. A large rent does not, by itself, defeat an otherwise applicable residential exemption.

Residential dwelling rented to a registered tenant

From 18 July 2022, entry 5AA of Notification No. 13/2017-Central Tax (Rate), inserted by Notification No. 05/2022, places renting of a residential dwelling to a registered person under reverse charge. The landlord may be registered or unregistered.

A company taking a residential flat on lease for employee accommodation generally falls within this rule. The fact that the employee lives there does not automatically make the company's lease exempt. Identify the actual recipient under the contract; an employee renting personally is a different arrangement from a company taking the lease itself.

Registered proprietor taking a home personally

From 1 January 2023, Notification No. 15/2022-Central Tax (Rate) expressly preserves exemption where the registered person is a proprietor of a proprietorship concern, rents the dwelling in a personal capacity for their own residence, and does so on their own account rather than the concern's account.

Keep the lease and payment records consistent with the actual arrangement. This exception is not a general exemption for all registered businesses, partnerships or companies renting residential premises.

5. Does the Rs. 20 lakh registration threshold apply?

For rental services, the ordinary registration threshold is Rs. 20 lakh of aggregate turnover in a financial year; the lower Rs. 10 lakh threshold applies in Manipur, Mizoram, Nagaland and Tripura. The enhanced Rs. 40 lakh threshold for eligible exclusive suppliers of goods is not the ordinary threshold for a rental-services business.

Calculate turnover across the same PAN, including other business supplies and exempt rent. It is not a separate limit for each property, tenant or rental agreement. However, a person making exclusively wholly exempt or non-taxable supplies is covered by Section 23(1)(a), so exempt residential rent alone does not automatically create registration liability.

Also examine Notification No. 5/2017-Central Tax: it exempts persons engaged only in taxable supplies whose entire tax is payable by recipients under Section 9(3) reverse charge. Mixed activities require a separate assessment.

6. How is GST on rent calculated?

For a taxable rent of Rs. 50,000 exclusive of GST, tax at 18% is Rs. 9,000.

• Forward charge: a regular registered landlord ordinarily invoices Rs. 59,000, collects it and accounts for Rs. 9,000 GST.
• Reverse charge: the tenant ordinarily pays Rs. 50,000 rent to the landlord and pays Rs. 9,000 GST to the Government separately.
• Exempt residential letting: no GST is added to the qualifying Rs. 50,000 rent.

If the contract states that Rs. 50,000 is inclusive of 18% GST under forward charge, the tax component is Rs. 50,000 x 18 / 118, or approximately Rs. 7,627.12. Read the tax clause before treating an agreed sum as exclusive of tax.

For domestic property-related services, Section 12(3) of the IGST Act generally places supply where the property is located. Compare that place with the legally determined supplier location to decide between CGST plus SGST/UTGST and IGST. A tenant's billing address alone does not settle the answer; cross-State and overseas arrangements require closer review.

7. Security deposits, maintenance and electricity

Refundable security deposit

A genuine refundable deposit is not automatically taxable when received. Section 2(31) becomes relevant if the landlord applies it towards rent or other consideration. Examine an adjustment or forfeiture on its facts; not every retained deposit has identical GST treatment.

Maintenance and other recoveries

Charges bundled with rent may form part of the value of a composite rental supply. Separately describing a recovery in the invoice does not, by itself, make it exempt. Independently supplied maintenance must be assessed according to its own contractual and tax treatment.

Electricity reimbursement

CBIC Circular No. 206/18/2023-GST explains that electricity bundled with renting or maintenance generally follows the principal supply, even if billed separately. It also recognises exclusion where the supplier acts as a pure agent; recovering the actual amount charged by the electricity board or DISCOM is specifically addressed in the circular. Preserve utility bills and recovery workings instead of assuming every electricity reimbursement is outside GST.

8. Can the tenant claim input tax credit?

A regular registered tenant may claim credit of GST on rent used for business, including eligible GST paid under reverse charge, subject to Sections 16 and 17, documentation, payment, reporting and time-limit requirements. Credit is not automatic merely because tax was paid.

• Rent used for taxable business activities may qualify; exempt activities and mixed use require the appropriate restriction or apportionment.
• Personal use and residential accommodation require careful examination, including the personal-consumption restriction in Section 17(5)(g).
• Composition taxpayers cannot claim input tax credit.
• Restrictions attached to a special output-tax rate may also prevent credit.

Reverse-charge tax must be discharged in cash; the existing electronic credit ledger cannot be used to pay that liability. Eligible credit may then be claimed subject to the law. The credit position should be considered separately from the obligation to pay reverse-charge tax.

9. A practical checklist for landlords and tenants

1. Identify the property and actual use. Keep the lease, address and permitted-use clause.
2. Verify both parties' GST status. Record GSTINs, the effective registration dates and whether either party uses composition.
3. Choose the correct tax mechanism. Distinguish exemption, forward charge and the relevant reverse-charge entry.
4. Review the agreed amount. Clarify whether rent is inclusive or exclusive of GST and document deposits and recoveries.
5. Prepare compliant documents. For applicable reverse-charge supplies from an unregistered landlord, issue the required self-invoice and payment voucher within the prescribed requirements. Avoid double charging by both parties.
6. Reconcile each tax period. Check time of supply, cash payment, return reporting, credit eligibility and changes in use or registration.

Hotels, hostels, paying-guest accommodation, serviced apartments, agricultural leases, government property and long-term development leases may involve separate entries or conditions. Do not apply this ordinary-rental table mechanically to those supplies.

Frequently asked questions