1. GST Applicability on Rent

(a) Residential Property

Rent for residential property used for residential purposes is exempt from GST.
If a residential property is rented to a registered business entity for commercial purposes, it attracts 18% GST under the Reverse Charge Mechanism (RCM), where the tenant pays the tax.

(b) Commercial Property

Rent from commercial properties, such as offices, shops, warehouses, etc., attracts 18% GST.
The landlord must collect GST if their aggregate turnover exceeds the threshold limit of ₹20 lakh (₹10 lakh for special category states) in a financial year.

2. Reverse Charge Mechanism (RCM)

If a residential property is rented by a GST-registered business entity, the tenant (business) must pay GST under RCM.
For commercial properties, GST is charged on a forward charge basis by the landlord.

3. GST Registration for Landlords

Landlords renting out commercial properties must register for GST if their aggregate turnover exceeds the threshold limit.
Income from rent of residential property for residential use is excluded when calculating the threshold.

4. Input Tax Credit (ITC)

Tenants can claim ITC on GST paid for renting commercial properties, provided the property is used for business purposes.
ITC is not available if the property is used for personal or exempted purposes.

5. Tax Invoice Requirements

Landlords who are GST-registered must issue a valid GST-compliant tax invoice to tenants, which should include:

GSTIN of the landlord and tenant
Description of the service
GST rate and amount
SAC (Services Accounting Code) for rent (9972).

6. Threshold Limits for GST Applicability

Residential property rent: Exempt from GST when used for residential purposes, regardless of the landlord’s turnover.
Commercial property rent: GST applies if the landlord’s turnover exceeds ₹20 lakh (₹10 lakh for special category states).

7.How to calculate GST on rented out properties:

A standard rate of 18% GST is applicable on renting immovable property. In order to calculate the GST on rented out properties, this formula is used:

GST = (Rent x 18)/100

Let’s say your monthly rent of a commercial property is Rs. 30,000, the GST payable on it would be calculated as follows:

GST = (30,000 x 18)/100

GST = Rs. 5,400

Therefore, the landlord would have to pay Rs. 5,400 as GST on the monthly rent of Rs. 30,000.

If you need more specific advice, feel free to ask!

FAQs:

Q1: Does GST apply to commercial rent?

A: Yes, an 18% GST applies to commercial rent. This may include renting out shops, offices, warehouses, and any other property used for business purposes. However there’s an exemption for small businesses with an annual turnover below Rs. 20 lakhs.

Q2: Does GST apply to residential rent?

A: No, GST is not applicable to rent received from renting out a residential property to someone who will live there (use it as their residence).

Q3: Can I claim tax credit (ITC) on GST paid for rent?

A: In most cases, if you pay GST on rent (usually for commercial properties), you might be eligible to claim Input Tax Credit (ITC) on that GST amount. It may work in your favour to offset other GST liabilities that you may have.

Q4: Who needs to register for GST when renting property?

A: If you rent out property to a business and your annual income (including rent and any other income) exceeds Rs. 20 lakhs, you’ll need to register for GST and pay taxes on the rent. This applies to both landlords and tenants (if they are registered businesses).