GST on Rent: Calculation, ITC and Legal Compliance in India 2025

The Goods and Services Tax (GST) regime has introduced regulatory and operational changes to the taxation of rental income since its inception on 1st July 2017, thereby affecting both landlords and tenants. A thorough understanding of the associated legal provisions is imperative to ensure compliance and mitigate the risk of penalties. This essay critically examines the prevailing GST rules on rent, systematically outlining key concepts, rates, exemptions, and compliance obligations. Official notifications and practical examples are referenced throughout to facilitate clear interpretation and application of these regulations.

The Positive Impact of GST on Rental Transactions

Payment of rent is of the utmost priority in any commercial business or personal life. Previously, landlords were subject to multiple indirect taxes such as service tax and VAT, which created administrative complexities and compliance challenges. With the introduction of GST, these disparate obligations have been unified into a single, streamlined system, simplifying procedures for both landlords and tenants. Standardized invoicing and digital record-keeping now ensure accurate reporting and efficient tax remittance, in line with official GST guidelines.

• GST provides clear distinctions regarding exemptions and applicability for residential and commercial rental arrangements.
• GST ensures equitable taxation and prevents the duplication of tax liabilities.

Does Renting Out a Property Incur GST?

Renting out an immovable property is categorised under the GST Act as providing a service. This means that GST applies to specific rental scenarios, such as:

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• Leasing, renting, licensing, or allowing an easement on any property.
• Letting out any property, whether it be for commercial, industrial, or residential use, for business purposes, in whole or in part.

This categorisation deems such activities as services, hence subject to GST. Notably, renting a residential property purely for living purposes is exempt from GST imposition. Conversely, any form of property rental aimed at business operations attracts a GST rate of 18%, recognised as a service supply.

There's a notable exemption: residential properties leased in a personal capacity for use as a residence do not attract GST. This exemption was highlighted during the 48th GST Council meeting, specifying that no GST is levied on residential dwellings rented by registered individuals for their personal use as a residence. For instance, if a person running a proprietorship rents a residential property for personal use, distinct from business operations, such a rental is exempt from GST. This clarification ensures a clear distinction between individual and commercial property rentals under the GST framework.

What is the effect of GST on Rent?

The advent of GST (Goods and Services Tax) has simplified taxation across sectors, including rental income, by replacing multiple indirect taxes like service tax and VAT with a single unified system. This has improved transparency, streamlined compliance, and reduced administrative burdens for landlords and tenants.

Key Points on GST Impact:

• Residential Rent: Purely for personal use, residential rent remains exempt from GST.
• Commercial Rent: Rent for commercial or business purposes is subject to 18% GST.
• Threshold Limit: Annual rental income up to ₹20 lakh for commercial properties is exempt from GST.
• Inter-state vs Intra-state Rent: IGST applies to inter-state transactions, while CGST + SGST (9% + 9%) applies to intra-state commercial rentals.
• Standardization: Digital invoicing and record-keeping facilitate compliance and accurate reporting.

This framework ensures clarity between residential and commercial rentals and encourages fair taxation under the latest GST regulations.

Who is required to Register when the Property is Rented to Businesses?

Landlords renting property to businesses must register for GST if their rental income exceeds the prescribed threshold. Registration ensures compliance and proper tax remittance under GST regulations.

• GST Registration Threshold: ₹20 lakh per year for most states; ₹10 lakh for special category states.
• Commercial Rentals: Income from renting to companies or for business purposes is taxable under GST.
• Previous Regime Benefit: Landlords previously paying service tax (threshold ₹10 lakh) can now earn an additional ₹10 lakh without exceeding the limit.
• Mandatory Compliance: All landlords crossing the threshold must obtain GST registration and issue proper invoices.
• Digital Records: Registration enables seamless invoicing, ITC claims, and compliance tracking as per the latest GST guidelines.

This ensures landlords renting to businesses are fully compliant while benefiting from standardized GST procedures.

How is GST Calculated on Commercial Property Rent? 

Landlords are required to register for GST under the following conditions:

• The aggregate annual rental income exceeds ₹20 lakh, or ₹10 lakh in designated special category states.
• The property is leased to a registered business entity.
• Official GST registration portal: https://www.gst.gov.in/[1]

Calculation of GST on Commercial Property Rent

• GST is calculated as 18 percent of the taxable rental amount.
• A threshold exemption applies for annual rental income up to ₹20 lakh.
• Example:
  • Rent: ₹2,50,000/month
  • Goods and Services Tax (GST), calculated at 18 percent of the taxable rental amount, is applied as follows: 18% of ₹2,50,000 results in a GST liability of ₹45,000, which is subdivided equally between Integrated GST (IGST) or equally between Central GST (CGST) and State GST (SGST), depending on whether the transaction is inter-state or intra-state.
  • Total Invoice: ₹2,95,000

Input Tax Credit (ITC) on GST Charged for Rent

When GST is levied on the rent of a commercial property, businesses can claim Input Tax Credit (ITC) to offset the tax paid against their overall GST liability. This mechanism ensures that GST on business-related rentals does not become an additional cost and supports efficient tax planning. To claim ITC, certain conditions must be met regarding usage, documentation, and registration.

How ITC Works for Rental GST:

• Eligibility: ITC can be claimed only if the rented property is used for business purposes.
• Invoice Requirement: A valid GST invoice is mandatory for claiming ITC.
• Registration Requirement: The claimant must be a registered GST taxpayer.
• Applicable Properties: ITC applies mainly to commercial properties; residential properties rented for personal use are excluded.
• Tax Efficiency: By claiming ITC, businesses can reduce their overall GST liability, effectively lowering costs and improving cash flow.

Tax Deduction for Rental Income

Landlords and property owners must understand the provisions for tax deductions on rental income. While collecting rent, GST is applied where applicable, and the tenant may also be required to deduct TDS under the Income Tax Act. These measures ensure proper tax compliance for both residential and commercial properties.

• The landlord is required to collect GST from the tenant when applicable.
• TDS at 10% for rent > ₹2.4 lakh/year [2]
• Both residential and commercial properties are subject to Tax Deducted at Source (TDS); however, TDS is not levied on the GST component.

GST on Renting an Immovable Property

Before we discuss GST on renting immovable property, it is essential to understand some concepts regarding GST on rent. The terms/concepts are 'taxable services under GST' and 'place of supply under GST 

• Taxable Services under GST - The GST law (Schedule 2 of the CGST Act) states that if an immovable property is rented, it will be treated as a supply of services. But GST on rental properties is only applicable to a certain type of property included under taxable services. They are mentioned below:
• Any tenancy, easement, lease, license to occupy land
• Rent or leasing out of an immovable property (building) including a residential complex, commercial or industrial building for business or business purposes, either completely or partially.
• (The above-mentioned fall under taxable service, hence, is applicable for payment of GST.)
• Place of Supply of Services under GST – IGST act (Section 12(3)) characterises the place of supply in case of services provided that fall under the immovable property. Therefore, in the event of administrations like giving rights to utilise the immovable property, the spot of supply would be the location of the said property. (For example, Mr A lives in Delhi and owns a property in Hyderabad, which he rents out. Then Hyderabad, where the property is situated, is the spot where GST will be applicable).

GST on Residential Property Rent

Renting a residential property attracts a ‘Nil rate’ GST if used solely for living purposes. However, if the property is leased for commercial activities, GST applies as per commercial property rules.

• Nil Rate for Residential Use: As per Notification No. 12/2017 – Central Tax (Rate) [4], GST on residential property rent is ‘Nil’ if the property is rented for purely residential purposes.
• Commercial Use Exception: If a residential property is rented for commercial purposes, GST is applicable at the same rate as commercial property rent.
• Example:
  • Mr. A owns an apartment and rents it out to a call centre.
  • Since the property is used for business purposes, the ‘Nil rate’ does not apply.
  • GST is charged on the rent as per the commercial property rules.

GST on Commercial Property Rent

Commercial property rentals attract GST at 18% on the taxable rent if the annual rental income exceeds ₹20 lakhs. The exemption limit has been increased from the pre-GST threshold of ₹10 lakhs, providing relief to many landlords.

• Exemption Limit: Annual rental income up to ₹20 lakhs is exempt from GST.
• Applicable GST Rate: If the annual rent exceeds ₹20 lakhs, GST is charged at 18% on the commercial property rent.
• Example:
  • Mr. A owns property in Hyderabad and rents it to XYZ Ltd. as a guesthouse.
  • Monthly rent = ₹20,000, annual rental income = ₹2,40,000.
  • Since the annual income is below ₹20 lakhs, GST is not applicable.
  • GST applies only if the annual rent exceeds ₹20 lakhs.

Lease Rent / Long-term Leasing

• GST applicability is determined by the purpose of the lease, whether residential or commercial.
• For commercial leases, GST is added to the invoice every month.

Inter-State vs Intra-State GST on Rent

GST Limit for Rental Incomes 

GST has proven to be a fair and structured form of tax evaluation and collection. Below are a few exceptions where GST on rent does not have to be paid:

• On an immovable property that is used for residential purposes.
• If the total rental income (commercial) is less than 20 lakhs.
• If rent is being paid to a registered charitable or religious organisation for the public and –
• Rent of the room is charged per day as Rs 1000 or less than that.
• The rent of the shops assigned is charged less than Rs 10,000 monthly.
• The rent of the community hall for a function is charged less than Rs. 10,000.

Maintaining your financial health becomes more complex with additional obligations like GST on rent. If you're seeking clarity on this subject or have other property-related inquiries, NoBroker's Legal Services are ready to assist. Our experts are dedicated to providing guidance and support, ensuring you're well-informed. Should you have any questions, simply drop a comment below, and our team will reach out to help. Explore NoBroker for direct and efficient assistance tailored to your needs.

How NoBroker Can Help? – NoBroker's Role in GST Compliance for Rental Transactions

NoBroker Legal Services supports landlords and tenants in managing GST and rental compliance efficiently. Our services include:

• Filing GST-Compliant Invoices: Generate accurate invoices that adhere to GST regulations.
• Claiming ITC and Exemptions: Ensure eligible Input Tax Credit and exemptions are correctly applied.
• Understanding TDS and Tax Deductions: Guidance on deducting TDS correctly on rental income.
• Managing Rental Documentation: Organize agreements, receipts, and records for full regulatory compliance.

With NoBroker, landlords can focus on rental management while staying fully compliant with GST and tax rules.

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