GST on Rental Services: Complete Guide for Indian Rental Businesses

The Goods and Services Tax (GST) regime in India has significantly impacted rental services, particularly for businesses dealing with immovable properties. Understanding GST applicability on rent is crucial for landlords and tenants to ensure compliance and optimize tax benefits.[1][2]

GST Rates on Rental Services

**18% GST** applies to renting commercial properties like offices, shops, and warehouses, classified as a supply of services. For residential properties used solely for living, rent is exempt from GST. However, if a residential property is used for commercial purposes, it attracts 18% GST.[1][3][4]

The rental income GST rate is fixed at **18%**, calculated on the total rent amount. Landlords must issue a **rent invoice** including GST, which tenants pay alongside the base rent.[2][4]

Registration Threshold for Landlords

GST registration is mandatory for landlords if annual rental income exceeds ₹20 lakh (₹10 lakh in special category states). Below this threshold, no GST is levied on rental income.[2][3][4]

Input Tax Credit (ITC) on Rent

Tenants paying GST on commercial rent can claim **Input Tax Credit (ITC)** if they are GST-registered and use the property for business. This reduces their overall tax liability. ITC is available on GST paid via the **rent invoice**.[1][3][4]

Reverse Charge Mechanism (RCM)

Under RCM, if the landlord is unregistered, the tenant (if registered) must pay GST directly to the government. This applies to commercial rentals.[3]

TDS on Rent Payments

Tenants must deduct **TDS at 10%** if annual rent exceeds ₹2.4 lakh, applicable to both residential and commercial properties. TDS is deducted from rent before GST calculation—no GST on TDS amount.[1][2]

Place of Supply Rules

GST type depends on location: intra-state rentals attract **9% CGST + 9% SGST**; inter-state attract **18% IGST**. Determined by the property's location.[4]

Exemptions and Special Cases

- Residential rent for personal use: Exempt.
- Charitable trusts: Exempt if room rent < ₹1,000/day.
- Short-term residential rentals (e.g., hotels): Taxable.[3][5]

Pre-GST Scenario

Before GST, service tax at 15% applied only to commercial rentals if turnover > ₹10 lakh. Residential rentals were exempt.[1][2][4]

Compliance Tips for Rental Businesses

1. Always issue a proper **rent invoice** with GST breakup.
2. Register for GST if threshold crossed.
3. Claim ITC where eligible.
4. Deduct TDS timely.
5. Maintain records for audits.[1][2][3][4]

For example, monthly rent of ₹35,000 attracts ₹6,300 GST (18%), totaling ₹41,300. Tenant pays this, claims ITC if applicable, and deducts TDS if yearly rent > ₹2.4 lakh.[4]

Conclusion

Navigating **GST on rental services** requires clear understanding of rates, exemptions, and compliance. Indian rental businesses must stay updated to avoid penalties and leverage ITC benefits effectively.[1][2][3][4]