GST on Rent: Indians are taxed by the government under GST. Different companies’ goods and services are taxed under four different slabs of 5%, 12%, 18% and 28% under GST. In this article, we will particularly discuss GST on rent of shops, offices, flats, lands, etc. We will get a clear overview of how GST is charged on the rental income that is earned by renting commercial property as well as residential property. After completing this article, the reader will be well aware of different facts that are related to GST, such as registration and payment requirement, reverse charge on rent under GST, place of supply, intra-state transaction and inter-state transaction.
Applicability of GST on Rent
When a person rents his/her property to another person, it is believed that the landlord is providing one kind of service to the latter; thus, he/she needs to charge a certain amount in exchange for the service provided. The amount charged is considered as an income for the landlord, which gets charged under GST. Renting an immovable property is a chargeable income under GST. As per the GST Act, the following types of rental services are charged under GST:
- Any type of lease, tenancy, easement, license in order to occupy the land.
- Any lease or giving out a building which can be a commercial or residential property which is used for business and commercial purposes.
The above types of renting come under the category of supply of services; thus, GST gets charged on these services. According to the notification 12/2017, rent that is received by a person when he/she rents a dwelling unit for residential purposes gets exempted from GST.
In simple words, the GST act gives a clear hint that GST will get charged on the rent of a commercial property only if that property is getting used for commercial purposes. When one rents his/her residential property for residential purposes, he/she gets exemption from GST. Still, if the residential property gets rented for commercial purposes, then the rental income gets charged under GST. This clearly shows that the purpose for which the property is being used clearly decides whether to charge GST or not.
On the other hand, the rental income earned by a registered charitable trust or the religious trust gets exempted from GST where:
- Rent of rooms cost Rs 1000 or less than that for a single day.
- Rent on shops, business units, and community halls of these charitable trusts cost Rs 10,000 or less than that for a single day.
- Rent on the open area or community halls gets charged for Rs 10,000 or less than that for a single day.
Registration and Payment Requirement
When the landlord of a residential property or a commercial property offers different services, and the total value of all the services cost around Rs 20 lakhs or less than that for a single year, then he/she doesn’t need to register for GST as he/she is exempted from GST. When the calculation of total services offered is getting executed, the landlord must include the income of all the rental houses he/she owns and the income from other suppliers of services. Let’s understand this matter with the help of different examples:
Example – 1
Mr. Arjun owns three properties which have been given on rent for the last three years. Rental income earned by Mr. Arjun in a year is as follows:
| Particulars | Rental Income Per Year ( in Rs ) |
| Property 1 | 6,00,000 |
| Property 2 | 7,00,000 |
| Property 3 | 8,00,000 |
| Total | 21,00,000 |
In this case, Mr. Arjun is bound to make a GST registration because his total income that is coming from all the properties is exceeding Rs 20 lakhs. Even though he earns less than Rs 20 lakhs from each property but the total income is more, so he has to register for GST.
Example – 2
Mr. Karan owns two commercial properties and does some side business that includes the supply of certain goods that are taxable under GST. The income earned by Mr. Karan from various sources is as follows:
| Particular | Income Per Year ( in Rs ) |
| Property 1 | 5,00,000 |
| Property 2 | 5,00,000 |
| Business of supply of certain goods | 12,00,000 |
| Total | 22,00,000 |
In this case, also Mr. Karan is bound to get registration under GST because his income from the rent of his commercial properties and supply of goods exceeds Rs 20 lakhs.
For some selected states, the limit of taxation is Rs 10 lakhs. These states are Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
It is not mandatory to register in the state where the immovable property is located. One can do the registration under GST in whichever state he/she wants; the location can be different from the location of the immovable property. For example, if a landlord got himself registered in Mumbai, but he has a property in Gujarat, then he doesn’t need to register under GST again at Gujarat.
Reverse Charge on Rent Under GST
According to the GST Act, if an immovable property is offered for rent by the government or any local authorities to a person who is registered under GST, here the rent has to be paid by the tenant under the reverse charge mechanism. In this case, only a reverse charge on rent under GST is applicable. In case the tenant is an unregistered person, then the government will plan for collecting GST under the forward charge mechanism.
Computation of GST on Rent
GST gets charged on the rental income of a registered person at a rate of 18%. If the landlord is collecting the rent by himself/herself, then he/she needs to collect the rent, including the GST amount as below:
Intra-state Transaction
| Monthly Rent Collected By Landlord | Rs 3,00,000 |
| Add: CGST@9% | Rs 27,000 |
| SGST@9% | Rs 27,000 |
| Total Invoice Amount | Rs 3,54,000 |
Inter-state Transaction
| Monthly Rate Collected By Landlord | Rs 3,00,000 |
| Add: IGST@18% | Rs 54,000 |
| Total Invoice Amount | Rs 3,54,000 |
Conclusion on GST on Rent
From this article, we got a detailed overview of GST charged on rental income, reverse charge on rent under GST, computation of GST and payment method of GST. Thus, it is now easy for a person who owns commercial and residential property to deal with the GST complications related to his/her rental income.