GST on Rental Income

GST on Rental Income: Applicability and Tax Filing Tips

Understand GST on rental income, its applicability, exemptions, and tax filing tips to stay compliant and avoid errors

Written by : Knowledge Centre Team

2026-07-31

1243 Views

8 minutes read

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For many, rental income offers a steady source of income, but it also comes with certain tax obligations. With the introduction of the Goods and Services Tax (GST), the tax treatment of rental income has evolved, especially for commercial properties and residential units rented for business purposes. Understanding the applicability of GST on rental income is important not just for landlords, but also for tenants, business owners, and tax professionals. In this blog, we break down the complex layers of GST and provide practical tax-filing tips to ensure you remain compliant and up to date.

Key Takeaways

  • Commercial rent attracts 18% GST; residential rent for personal use stays exempt from tax

  • Renting a home to a GST-registered tenant triggers 18% GST under RCM, paid by the tenant, not the landlord

  • Landlords must register for GST once turnover crosses ₹20 lakh (₹10 lakh in special category states)

  • TDS on rent now applies to amounts above ₹6 lakh/year under Section 393 of the Income Tax Act, 2025

  • Landlords and tenants can claim ITC on GST paid for rent-related business expenses, boosting cash flow

An Overview of GST Applicability on Rent

Under GST law, rent earned from leasing or renting property may be subject to GST, depending on the nature of the property and the tenant. Generally, GST is levied at 18% on the renting of commercial properties under the rental agreements. Renting residential properties for use as a residence is exempt from GST, whereas different provisions may apply when such properties are rented for business purposes. Understanding these distinctions can help avoid compliance issues, unexpected tax liabilities, and challenges in personal financial planning.

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Rental Income and Tax Laws: A Look at the Pre-GST Era

Before the implementation of GST in July 2017, service tax was applicable on rental income from commercial properties. Residential properties were generally exempt. The pre-GST system comprised multiple indirect taxes, including  VAT, service tax, and other local taxes that varied from state to state, making compliance for property owners with multiple rentals cumbersome. GST was introduced to streamline indirect taxation and create a more uniform tax framework, although certain nuances apply.

GST on Rent: Who Needs to Pay?

A person earning rental income may be required to register under GST if their aggregate annual turnover from taxable supplies exceeds the prescribed threshold under GST law. In most states, this threshold is ₹20 lakh, while lower limits apply in certain special category states. The nature of the property and the purpose for which it is rented also impact the applicability of GST.

You need to pay the rental GST if:

  • Your commercial property is on rent (Be it for residential or commercial tenants)

  • Your residential property is rented to a business entity for commercial use

  • Your aggregate turnover exceeds the applicable GST registration threshold.

  • Voluntarily opt to register under GST even when registration is not mandatory

  • Receive rental revenues from a business entity such as a company, partnership firm, or LLP, where GST provisions are applicable

Do you know

Did You Know?

The SC allowed Input Tax Credit (ITC) on commercial rental construction, potentially saving developers up to 18% GST on input costs
 

Source: Hindustan Times

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Landlord Alert: GST Implications That Should Be Known

If you own a diversified property portfolio as a landlord or are renting out properties to corporates, GST laws may apply depending on the nature of the property, the tenant, and your GST registration status. Keep these points in mind:

  • GST is chargeable at 18% on the rental of commercial rent

  • GST may apply to residential properties rented to GST-registered persons for business purposes, subject to the applicable GST provisions

  • You must issue GST-compliant invoices every month or quarter

  • Advance rent also attracts GST

  • TDS is applicable on rent as well
     

Note: As per Budget 2025, the threshold for deducting TDS on rent was raised from ₹2.4 lakh to ₹6 lakh a year (₹50,000 a month), now governed by Section 393 of the Income Tax Act, 2025 (earlier Section 194-I of the Income Tax Act, 1961)

GST Rules for Renting Out Residential Property

Residential property rented out for self-consumption is not subject to GST, regardless of the quantum of rent received. However, if the same property is rented out to a GST-registered person for use as a guesthouse or staff quarters, then GST at 18% is chargeable. This is payable by the tenant under the Reverse Charge Mechanism (RCM), rather than charged by the landlord. An exception applies where a registered individual rents the property in their personal capacity purely for their own residence; in such cases, no GST on rent of residential property is levied. 

The tenant's status and the property's intended use are key determinants of tax liability.

GST on Commercial Space Renting

If you're renting office spaces, retail stores, or warehouses, GST will definitely come into play. All commercial rentals are required to pay the 18% GST, and landlords should pass this on to tenants. Then, they must remit it to the government under the forward charge mechanism. However, since 10th October 2024, if an unregistered landlord rents out commercial property to a GST-registered tenant, the liability to pay GST shifts to the tenant under the Reverse Charge Mechanism (RCM). 

In addition, if the property is jointly owned, each co-owner must assess their income independently for GST taxability. Filing returns in a timely and prudent manner is essential to avoid penalties and additional interest.

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Saving Tax on Rented Property: Key Provisions

Minimising tax expense while being compliant is the key. GST law offers several mechanisms that may help eligible landlords reduce their tax burden, primarily through Input Tax Credit (ITC) and expense deductions.

Some of the following provisions and suggestions might be of interest to you:

Provision/Tip

Benefit

Opt for the Composition Scheme

Simplify GST filing hassles if eligible; available to landlords as service providers with an aggregate turnover up to ₹50 lakh, under Section 10(2A) of the CGST Act, though ITC cannot be claimed under this scheme

Claim ITC

Reduce tax outflow on maintenance, repairs, and legal services (only available where the property is used for business purposes, not personal or residential use)

Split lease agreements smartly

Residential vs commercial usage affects tax applicability

Maintain digital records

Smoothens ITC claims and GST returns filing

Register under GST if approaching the threshold

Avoid interest and penalties for delayed registration (the current threshold is ₹20 lakh annually, or ₹10 lakh in special category states)

Tenants making rent payments for business purposes may also enjoy ITC on rent, improving cash flow effectiveness. This can help improve cash-flow efficiency. Consulting a qualified tax professional while filing returns can help ensure compliance and maximise eligible tax benefits.

Rental Agreement Checklist: What to Check Before Signing?

A duly drawn rent agreement is crucial for clear tax treatment and legal protection. As a landlord or tenant, make sure that GST clauses are thoroughly documented. It must clearly specify who bears the GST liability, the landlord under forward charge, or the tenant under reverse charge, depending on the transaction.

Rent to Companies: Who Should Register Legally?

Landlords renting out to registered companies should pay close attention to GST registration requirements. Although the rental income is below ₹20 lakh (the threshold for mandatory GST registration), GST may still apply to the transaction. In such cases, the liability shifts to the tenant under the Reverse Charge Mechanism (RCM), rather than requiring the landlord to register. A landlord is required to register under GST when:

  • Commercial property which is let on rent, generating taxable income exceeding the registration threshold

  • Residential property rented out for commercial purposes

  • Total income (including rent) received over ₹20 lakh a year (₹10 lakh in special category states)

  • Renting is carried out as a business activity alongside other taxable income streams, taking the aggregate turnover past the threshold

Compliance and Reporting: What You Need to Know

Even after registration, landlords will be required to comply with various GST provisions from time to time. The following are the reporting regulations you should be aware of:

  • File GSTR-1 (outward supplies) either monthly or quarterly if you've opted for the QRMP (Quarterly Return Monthly Payment) scheme, available to taxpayers with turnover up to ₹5 crore

  • Claim ITC when filing GSTR-3B against tax paid on eligible business expenses

  • Retain your books updated and records for 72 months or 6 years from the due date of filing the annual return, as required under GST law

  • Issue  tax invoices to tenants on time

  • Correctly mention the place of supply and GSTIN on all invoices and documents

Claim ITC on GST Paid for Rent

Tenants who occupy rented facilities for business purposes can claim ITC on GST paid, thereby reducing the overall tax cost. The property must be utilised exclusively for business purposes, and the invoice must clearly indicate the amount of GST separately from the rent. For landlords, ITC is available on input services used in rented facilities, such as security, property maintenance, or brokerage.

Asserting ITC enhances liquidity and facilitates tax efficiency. Landlords and tenants alike should factor the benefits of ITC into their approach to commercial property leases, as ITC can be compatible with long-term personal finance management and wealth maximisation strategies. 

Rental Property Repairs: Are You Able to Claim ITC?

Yes, landlords can recover ITC on the cost of repairs or refurbishments of rented business properties, as long as the services are provided by registered providers and the input services are consumed directly for the purpose of earning rental income. These costs must not be capitalised, as per Section 17(5) of the CGST Act, which blocks ITC on expenses capitalised toward immovable property. Expenses relating to residential property are not typically eligible for ITC unless the property is let out for business use. 

Determining the Right Place of Supply Under GST:

Place of supply plays a crucial role in identifying the applicable GST state code and tax jurisdiction. As per Section 12(3) of the IGST Act, 2017, the law treats rental income as an immovable property service, with the property's location as the place of supply.

Steps to determine the place of supply:

  • Identify the location of the property

  • Use that state's GST code when filing your returns

  • Verify the same with the tenant's GSTIN for proper reporting

Calculation of GST on Rental Property

Knowing how to compute GST on rental income helps avoid errors and ensures accurate filing. The standard rate is 18%, but the calculation method matters.

Here’s how to calculate GST on rent:

  • Determine the monthly rent (example: ₹1,00,000)

  • Apply 18% GST (₹18,000)

  • Total payable by tenant = ₹1,18,000

  • Generate a GST invoice and report in GSTR-1

  • Pay the tax when filing  GSTR-3B

Make sure the GST amount is indicated separately on the invoice, not included with the rent. Both parties are aided by it with ITC tracking and audit preparedness.

Conclusion

GST on rental income is governed by rules, thresholds, and usage-based exemptions. From the notion of place of supply to availing ITC, landlords and tenants need to keep themselves up to date to maximise tax advantages and comply with requirements. Leasing out real property or using it for business, whatever your activity, knowing about GST applicability can ensure error-free compliance and prevent unnecessary expenditure.

Glossary

  1. Place of Supply: The property’s location determines GST jurisdiction and must match returns and invoices
  2. Input Tax Credit (ITC): GST paid on rent or repairs can be claimed if used for business, reducing tax liability
  3. GSTR-3B: A monthly GST return used to pay tax and claim ITC; crucial for rental income compliance
  4. GST-Compliant Invoice: An invoice containing all details required under GST law for tax reporting
  5. Reverse Charge Mechanism (RCM): A GST provision where the recipient, instead of the supplier, is liable to pay GST
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FAQs

GST is not applicable if the residential property is rented for personal use. It applies if rented to a GST-registered business. However, if it's rented to a GST-registered person, GST at 18% becomes applicable and is payable by the tenant under the Reverse Charge Mechanism (RCM), not charged by the landlord. An exception applies if the registered tenant rents the property solely as their personal residence, in which case no GST applies.

Commercial property rent attracts 18% GST, which must be collected and paid by the landlord if they are registered under GST. However, if the landlord is unregistered and the tenant is GST-registered, the liability shifts to the tenant under RCM.

 

Landlords earning over ₹20 lakh (₹10 lakh in special category states) annually, or renting to businesses under GST, must register and comply with GST laws.

Yes, if the rented property is used exclusively for business and proper GST invoices are issued, ITC can be claimed on the rent.

GST on rent income is reported through GSTR-1 (filed monthly or quarterly under the QRMP scheme for turnover up to ₹5 crore) and paid via GSTR-3B. Timely filing helps avoid penalties and enables ITC claims.

The GST on rent limit for registration is ₹20 lakh in aggregate annual turnover (₹10 lakh for special category states). Below this threshold, landlords aren't required to register for GST on the GST received, though voluntary registration is allowed if it helps with ITC claims.

Yes. GST on residential property rent applies when the property is used for business rather than as a personal residence, even though a purely residential dwelling remains exempt. So, is GST applicable on rent here? It depends entirely on the intended use, not just the type of property.

RCM shifts the GST on rent payment liability from the landlord to the tenant in specific scenarios, for instance, when a GST-registered tenant rents a residential dwelling or rents commercial space from an unregistered landlord. The tenant self-invoices, pays the rent at the GST rate of 18% directly to the government, and can claim ITC if the property is used for business.

Individual landlords need GST registration only if their total taxable income, including GST on rent, exceeds ₹20 lakh per year, or if they rent commercial property as a regular business activity. Below this threshold, GST on lease rent doesn't apply, and no registration is needed.

Advance rent is treated like regular rent and attracts GST at the standard rent GST rate of 18% for taxable properties. A refundable security deposit, however, isn't subject to GST unless it's later adjusted against rent, at which point it becomes taxable.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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