With Goods and Service Tax (GST) being evident in every sector then how can the income from rent escape the premises. Well, GST is much modernized and a well-structured tax collecting mechanism as compared to any tax system in India. Nothing is 100% fine therefore provisions are still being introduced to eliminate the minute flaws of GST.

For now, let’s talk about the effects of GST implementation on rental income and what it was before GST. 

GST onn income from rent

Laws before GST

Before the initiation of GST the owner whose taxable earnings from rent exceeds Rs. 10 Lakhs a year has to pay service tax to the government on the taxable amount. If the owner’s total taxable income from the rent of all the properties is less than Rs. 10 Lakhs per year then clearly he was immune from paying any services tax to the government and further he was not liable to Service Tax Even if his Rental Income Was more than 10 Lakh but Taxable earnings was less than Rs. 10 Lakh.

Another prominent rule was that tax was levied only on renting the commercial properties. Owners will come under the ambit of paying 15% tax on the total taxable income they get from renting out their commercial properties. The law remains if the residential space is given out on rent for commercial use. Rental Income from any residential property did not bring any tax obligations for the owner. 

Laws After GST

Under the GST regime, tax collection mechanism has been completely transformed for the betterment of the property owners. As per current laws also there is no tax on income earned from renting the residential house. Clearly, the owner is exempt from paying tax on the income from houses or houses he/she has given out on rent.

Another amendment is that the pre-GST threshold limit for total taxable income on commercial properties (i.e. Rs. 10 Lakhs) has been increased to Rs. 20 Lakhs. Means now the tax on income from the rent of commercial property will be charged only if it exceeds the threshold of Rs. 20 Lakhs per year. This helps many landlords to stay out of the GST ambit.   

GST will be applicable when the rental income from commercial leasing is beyond Rs.20 lakhs. When you rent out a residential property for residential purpose, it is exempt from GST. Any other type of lease or renting out of immovable property for business would attract GST at 18 %, as it would be treated as a supply of service. This includes leasing out commercial and residential property for commercial purposes, either fully or partially.

The GST applicability is not decided by the nature of the property but by the purpose for which it is used. If you live in Delhi and have a property in Chennai that is rented out to a listed company for use as guest house, then such a transaction will be leviable to GST if the rental income exceeds Rs.20 lakhs per annum. Here the use of the house is as a guest house, which is a commercial usage.

What will be the place of supply in the above case? Under GST, the place of supply shall be the location of the immovable property. Even though you may reside in Delhi, the place of supply will always be where the property is situated, which is Chennai and hence the state to receive the SGST will be Tamil Nadu.

TDS is deducted on rent exceeding Rs 2.4 lakh annually. If tax on your total income is nil, you can submit Form 15G or Form 15H to request the tenant to not deduct TDS (applicable from 1 April 2019).

GST Effects on Rental Income of the property owner

There is a positive impact of GST on property owners who are getting income from rent. As discussed earlier, the owner is immune from paying tax on the income he/she receives from renting out a residential property. However, the taxable income from renting out a commercial space will invite tax at the rate of 18% (only if it exceeds the threshold limit of Rs. 20 Lakhs per year).

Adding on to this if the property is given on lease by the owner to a second party then the GST rate will be 18%, as it is considered the supply of service. 

Calculating GST on rental income earned from commercial property

Getting the figures of GST applicable to rental income from a commercial property:

  • GST is calculated at an 18% rate on the taxable income from the rent of commercial properties. They are included in the supply of services.  
  • Rent for shops and other business spaces is Rs. 10,000 or less per month
  • Rent for community halls or any open area is Rs. 10,000 or less per day
  • Properties listed under the name of any charitable or religious trust and is also managed by them then such spaces are immune from GST. However, GST is applicable only if such rooms or resting spaces cost (for the common man) more than Rs. 1000 per day. 

Note: Also you can file GST return via Gen GST Software. This software completely decade and designed by SAG Infotech PVT. Ltd. 

Is the GST paid on rent claimable for the purpose of input tax credit (ITC)?

The person paying GST on rent can take credit for this tax paid against the GST that he is required to pay. In a nutshell, if all the provisions to claim Input tax credit are fulfilled, ITC on GST paid on rent can be claimed.

Tax Deduction policy on income from rent

Provided by law, the tenant of a rented commercial property has to deduct GST at the time of paying the rent to the owner. Commonly known as Tax Deducted at Source, the person paying the rent needs to deduct 10% TDS on the amount of rent he is paying to the owner under Section 194I of the Income Tax Act, 1961. The amount will be submitted to the tax officials by the tenant or deductor.

TDS is deducted on rent exceeding Rs 2.4 lakh annually. If tax on your total income is nil, you can submit Form 15G or Form 15H to request the tenant to not deduct TDS (applicable from 1 April 2019).

Please Note; 10% TDS is applicable to the amount of rent from both residential as well as commercial property. On TDS there is no GST.  

Also, the tax charged by legal authorities on the rental income from immovable property rented to a registered person then it is listed under the Reverse Charge Mechanism. On the other hand, if the property is rented to any unregistered person then the government will deduct GST on their own which is known as the Forwarding charge mechanism.  

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16 Comments

  1. ankur agarwal says:

    we have leased out our factory plant building machinery .total rental income is 7,20,000.

    we have to pay 18% gst or not ? as our rental income is below 20 lakhs

  2. Shailesh says:

    सर, क्या rent receipt के लिए tax invoice series ,goods supply के लिए जारी tax invoice series से अलग नया बना सकते हैं?

  3. Padhu says:

    Dear sir,
    If an educational Institution (university) collects rent from the bank in its premises, is it subject to GST?

    Also, if the same university , having an guesthouse, Is GST applicable on the rental income received from such guest house?

  4. Purva Kansara says:

    Hello sir,
    If any individual person give property on rent for some school, same gst rate & limit will be applicable.

    Please guide.
    Thanks

  5. Harish says:

    I’m paying a shop rent of ₹21,840.00 + GST 18% ie ₹3931.00 totalling to 21840.00 per month. I m paying to the super Bazaar which it is a quasi-government (state)
    When and how the GST is applicable to me.? Please let me know.

  6. “if you live in Delhi and have a property in Chennai that is rented out to a listed company for use as guest house, then such a transaction will be leviable to GST if the rental income exceeds Rs.20 lakhs per annum. Here the use of the house is as a guest house, which is a commercial usage.”

    In “Borbheta Estate Pvt Ltd”, GST AAR West Bangal provided that, Residential Unit let out to a company and company is using the property as residence for his employees than such leasing or renting of property is EXEMPT from tax under SI No. 12 of Notification No. 12/2017 — Central Tax (Rate) dated 28/06/2017

  7. Tsering says:

    Can anyone clear my doubt if the rental is for commercial activities example let out for mini stall and if the per day rental value is less than Rs.1000. So in that case do we need to pay GST on rent @18% as prescribed.

  8. K K Jha says:

    Hi Sir,
    GST Effects on Rental Income of the property owner
    It not clear for Gst rate on commercial property @15 or 18% please give me explanation

    1. shivkumawat says:

      In the case of commercial spaces on rent, the applicable GST rate will be 18% on the taxable income as rent is treated as a supply of service.

  9. Praveen Tilot says:

    Very nice article.
    I have doubt that if a individual is proprietary in trading business and register with GST for that trading. He has another income source from renting of commercial premises in his individual capacity, which not connected with his trading business.
    Questions is is he liable to GST on renting income even his total rent income is less then 20 lakhs in p.a.?

  10. K K Jha says:

    Hi Sir,
    It is not clear your Para :-
    GST Effects on Rental Income of the property owner
    Please clear tax rate on commercial property @15% and another 18%

  11. Praveen Tilot says:

    Very nice article, but I have doubt that what happen if I am GST registered person for trading concern in proprietary name , and I have also rent income from commercial space in individual name.
    I paid GST for my business but what about GST on rent income which received less then 20 lakhs p.a.?
    Is GST applicable on rent also while it’s received in my individual name.

  12. Antony George says:

    Such poorly written article. “ Provided by law, the tenant of a rented commercial property has to deduct GST at the time of paying the rent to the owner. Commonly known as Tax Deducted at Source, the person paying the rent needs to deduct 10% TDS on the amount of rent he is paying to the owner. The amount will be submitted to the tax officials by the tenant or deductor.” are you on weed or so ? What are you trying to say ?
    Completely forgot to say the limit under sec 194I and the applicability of 15G/H.

    When you say the limit is 20 lakh under GST. Understand it’s a blanket limit INCLUDING EXEMPT SERVICES. NOT SO UNDER THE SERVICE TAX REGIME.

    Delete the bullshit article and write a new one afresh. Plus read sec 9(3). I don’t understand legal authority government deducting etc. read the entry.

    When you write an article quote the rules when you are mentioning something. State whether you are following the inherent assumption that amounts quoted are including the GST amounts rule 35 etc. POORLY WRITTEN CRAP OF AN ARTICLE.

  13. Srikanth says:

    Heard that GST on services received/provided aggregate turnover crosses 20lakhs then GST registration has to be applied.And aggregate turnover mean exempted supplies,zero rated suppliesetc. So then salary earned,interest incomes received,agriculture income has to be considered for calculating turnover 20lakhs threshold even though exempted from GST.And if commercial rent crosses 20lakhs limit along with other above mentioned heads then 18% GST had to be paid.Is that true.May plz confirm

    1. shivkumawat says:

      A business whose aggregate turnover in a financial year exceeds Rs 20 lakhs has to mandatorily register under GST. “aggregate turnover” means the aggregate value of all taxable supplies, excluding the value of inward supplies on which tax is payable by a person on reverse charge basis, exempt supplies, exports of goods or services or both and inter-state supplies of persons having the same Permanent Account Number, to be computed on an all-India basis but excludes central tax, State tax, Union territory tax, Integrated tax and cess.

      In the case of commercial spaces on rent, the applicable GST rate will be 18% on the taxable income as rent is treated as supply of service.

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