3. Key Definitions

Understanding these terms is critical to apply GST correctly.

4. Distinction: Residential vs Commercial Use

• Residential Rent: Exempt under Notification 12/2017–Central Tax (Rate), entry 12.
  Renting a dwelling unit for use as residence is exempt from GST.

• Commercial Rent: Taxable under GST at 18% (9% CGST + 9% SGST).
  Renting of property for office, shop, warehouse, or any business purpose constitutes “GST on commercial property rent”.

If the same property is rented for mixed use, liability depends on the dominant purpose. If the premises are primarily used for business, the exemption does not apply.

5. GST Registration Threshold for Rental Income from Commercial Property

The registration threshold determines whether a landlord must obtain GST registration.

• General Threshold: ₹ 20 lakh aggregate annual turnover (₹ 10 lakh for special category states such as the North-East).

• Aggregate Turnover includes rental receipts and any other taxable supplies made by the same PAN.

If the rental income plus other taxable receipts exceed ₹ 20 lakh in a financial year, GST registration is mandatory.

Example:
If a property owner earns ₹ 15 lakh as consulting income and ₹ 10 lakh as commercial rent, aggregate turnover = ₹ 25 lakh → registration compulsory.

Even a single commercial property can trigger registration if rent crosses the threshold.

6. GST Applicability When Below Threshold

If total turnover (including rent) is below ₹ 20 lakh, registration is not mandatory and the owner need not charge GST.

However, if the lessee is a registered business entity, GST may apply under the reverse charge mechanism (RCM), where the tenant pays the tax on behalf of the unregistered landlord (if notified category).

As of 2025, commercial renting by unregistered lessors to registered persons is covered under reverse charge, meaning GST is still payable—but by the tenant.Even when registration is not required, awareness of GST on Rental Income from Commercial Property provisions prevents future disputes.

7. Commercial Property Rent GST Rate 18% – How It Applies

The applicable rate of GST on rental income from commercial property is 18% (CGST 9% + SGST 9%).

Example Calculation

Monthly rent: ₹ 1,00,000
GST @ 18%: ₹ 18,000
Total invoice value: ₹ 1,18,000

If the lessor is registered, they must:

• Issue tax invoice (showing GSTIN, SAC 997212, and GST amount)

• Collect GST from lessee

• Deposit tax via GSTR-3B and report in GSTR-1

• Provide input tax credit (ITC) to lessee

8. Input Tax Credit (ITC) on Commercial Rent

When the tenant is registered and uses the rented property for business, they can claim ITC of the GST charged on rent, subject to conditions under Sections 16-17 of the CGST Act.Correct application of GST on Rental Income from Commercial Property ensures tenants can claim valid ITC and landlords remain fully compliant with GST return obligations.

Conditions for ITC eligibility:

1. Valid tax invoice from registered lessor.

2. Tenant uses premises for taxable business operations.

3. GST actually paid and reflected in GSTR-2B.

4. Lessee not blocked under Section 17(5).

ITC is disallowed if the premises are used for personal or exempt supplies.

9. Reverse Charge on Rental Income from Commercial Property

When a registered business leases commercial property from an unregistered lessor, GST is payable by the lessee under RCM as per Notification 13/2017-Central Tax (Rate).Even where the landlord is unregistered, GST commercial rent India provisions may shift liability to the tenant through reverse charge. This ensures GST on rental income from commercial property is collected by the government irrespective of registration status.

Reverse charge liability under GST on Rental Income from Commercial Property guarantees tax collection even from unregistered landlords.

Implication

• Lessee must self-invoice and pay 18% GST.

• The same amount is available as ITC (if eligible).

• The lessor remains outside GST compliance if total turnover < threshold.

This ensures tax neutrality while simplifying compliance for small landlords.

10. Treatment of Security Deposits and Advance Rent

• Refundable Security Deposit: Not taxable unless adjusted against rent.

• Advance Rent: Taxable at the time of receipt, since it represents consideration received in advance for supply of service (Section 13).

GST must be paid in the period of receipt for advance rent, even if the rental period has not begun.

11. Place of Supply and Tax Jurisdiction

The place of supply for renting of immovable property is always the location of the property (Section 12(3)(a) of the IGST Act).

Multiple-state ownership increases procedural complexity under GST on Rental Income from Commercial Property, requiring state-wise registration.

Hence, GST registration and tax liability arise in the state where the property is situated.
If an entity owns properties in multiple states, separate registration is required in each state.

12. Time of Supply and Invoicing Rules

Invoices must be raised monthly or as per agreement. Delay leads to interest liability under Section 50.

13. GST Compliance Checklist for Landlords

1. Obtain GST registration (if turnover > ₹ 20 lakh).

2. Raise tax invoice mentioning GSTIN, SAC 9972, and 18% GST.

3. Maintain separate rent ledger, agreement, and payment proof.

4. Report taxable value in GSTR-1 (outward supply).

5. Pay tax through GSTR-3B before 20th of next month.

6. Keep agreement copy for audit verification.

7. Issue receipt voucher for advance rent and refund voucher for cancellations.

Failure to comply attracts penalties under Sections 122–125.

14. GST on Renting to Government, Charitable or Educational Entities

GST applies uniformly unless specific exemption applies.

15. GST on Co-Working Spaces and Shared Offices

Co-working space operators typically lease a large property and sub-lease desks or cabins.
Such transactions constitute renting of immovable property service.

GST treatment:

• Operator must charge 18% GST to clients.

• Can claim ITC on rent paid to building owner (if registered).

• Must ensure both lessor and operator are properly registered and compliant.

This chain ensures input credit flows without blockage.

16. Special Situations

16.1 Renting of Property by Partnership Firm to Partners

If property is owned by firm and leased to a partner for business use, it is a supply between related persons (Schedule I). GST applies even without consideration (based on open-market value).

16.2 Sub-Lease Arrangements

A tenant who further sub-leases property is treated as supplier. GST applies on sub-lease consideration separately.

16.3 Joint Ownership

If multiple co-owners receive separate rent cheques, each is assessed individually. If each co-owner’s turnover < ₹ 20 lakh, registration not mandatory.

17. Accounting and Disclosure under Income-Tax Act

It is crucial to understand that the rental income commercial property GST mechanism coexists with direct-tax obligations under the Income-tax Act.While GST governs indirect taxation, rental income remains taxable under Income-tax Act, 1961:

• Under “Income from House Property” for individuals and firms.

• Under “Profits and Gains from Business or Profession” if letting forms part of business (e.g., commercial complexes).

Key Points

• Standard deduction = 30% of Net Annual Value.

• Interest on borrowed capital deductible.

• GST collected is not part of income; it is liability payable to government.

• GST paid on rent (as lessee) can be claimed as business expense or ITC depending on context.

Thus, GST and income tax operate concurrently but independently.

18. Documentation Essentials

1. Registered rent/lease agreement mentioning GST clause.

2. PAN, GSTIN of both parties.

3. Proof of property ownership.

4. Monthly invoices with breakup of rent + GST.

5. Proof of tax payment and returns.

6. Ledger reconciliation annually for audit.

7. Ensure SAC 997212 used consistently.

Meticulous documentation avoids future disputes with GST department or lessee.

19. Impact Analysis: GST on Commercial Rent – Economic Perspective

20. Common Errors Observed During GST Audits

1. Failure to obtain registration despite exceeding ₹ 20 lakh.

2. Charging wrong GST rate (12% or 28% instead of 18%).

3. Incorrect SAC code used in invoice.

4. Advance rent not declared in correct period.

5. Missing linkage between rent ledger and GSTR-1.

6. Claiming ITC on exempt (residential) rent.

7. Omission of RCM reporting by tenants.

Chartered accountants must vigilantly verify these during GST audits or annual returns.

21. Illustrative Scenarios

The framework of GST on Rental Income from Commercial Property will continue to evolve as the government refines GST administration and digital integration.