GST on property rent or lease in India depends on the property type (residential or commercial), and the registration status of both the landlord and the tenant, applying either Forward Charge Mechanism (FCM) or Reverse Charge Mechanism (RCM). Renting a residential dwelling to a registered business is subject to RCM, regardless of the landlord’s registration status, while renting to an individual for personal use is exempt. Commercial property rent is typically under FCM if both parties are registered. Renting from a registered government entity is FCM, but from an unregistered government entity, it’s RCM for the registered tenant. Long-term land leases (30+ years) to promoters are taxable under FCM. Sub-renting by a registered sub-lessor to a registered sub-lessee is taxable under FCM, requiring the sub-lessor to register if their turnover exceeds the threshold and issue GST-compliant invoices. Non-compliance, such as failure to pay under RCM or register when required, can result in interest and penalties. Businesses and professionals should assess registration obligations, comply with RCM procedures, and include appropriate tax clauses in agreements.
GST ON RENT/LEASE OF PROPERTY (RESIDENTIAL & COMMERCIAL): ANALYSIS UNDER RCM & FCM
OVERVIEW & APPLICABILITY MATRIX (with Examples)
S. N. |
Type of Property |
Landlord Type |
Tenant Type |
GST Applic-ability |
GST Type |
RCM / FCM |
WEF Date |
Example |
Legal Reference |
1 |
Resi-dential Dwelling |
Unreg-istered Individual |
Regd. Business |
Yes |
Rent/ Lease of Im-movable Property |
RCM |
18.07.22 |
Mr. A (unreg-istered) gives flat to XYZ Ltd. for employee use |
Sec 9(3), Entry 5AA, Notif. No. 5/2022-CT (Rate), Circular 177/09/2022-GST |
2 |
Resi-dential Dwelling |
Regd Individual |
Regd Business |
Yes |
Rent/ Lease of Im-movable Property |
RCM |
18.07.22 |
Mr. B (Regd) leases flat to ABC Ltd. for its directors |
Sec 9(3), Entry 5AA, Notif. No. 5/2022-CT (Rate), Circular 177/09/2022-GST |
3 |
Resi-dential Dwelling |
Any |
Individual (Personal use) |
No |
Exempt |
NA |
NA |
Mr. C takes house on rent for personal residence |
Notif. No. 12/2017-CT (Rate), Entry 12 |
4 |
Comm-ercial Property |
Regfd Person |
Regd Person |
Yes |
Comm-ercial Rent/ Lease |
FCM |
01.07.17 |
ABC Ltd. leases shop to DEF Ltd. in a comm-ercial complex |
Section 9(1), CGST Act |
5 |
Comm-ercial Property |
Unre-gistered Person |
Regd Person |
No if exempt |
NA |
NA |
NA |
Mr. D (below thres-hold) leases office to MNO Ltd. |
Section 22 read with Section 9(1), CGST Act |
6A |
Any Property |
Govt (Regis-tered) |
Regd Person |
Yes |
Rent/ Lease by Govt |
FCM |
01.07.17 |
SIDC (Govt entity) leases land to Infra Ltd. |
Entry 5A, Notif. No. 12/2017-CT (Rate) |
6B |
Any Property |
Govt (Unre-gistered) |
Regd Person |
Yes |
Rent/ Lease by Govt |
RCM |
01.07.17 |
Local Munici-pality (unreg-istered) leases building to ABC Ltd. |
Entry 5A, Notif. No. 13/2017-CT (Rate) |
7 |
Land (≥30 years lease) |
Any |
Promoter |
Yes |
Long-term Land Lease |
FCM |
01.07.17 |
Develop-ment Authority leases industrial land to promoter for 90 years |
Entry 5C, Notif. No. 12/2017-CT (Rate), Entry 41A |
8 |
Sub-Rent/ Lease (Sub-leasing) |
Regd Sub-lessor |
Regd Sub-lessee |
Yes |
Comm-ercial Rent/ Lease |
FCM |
01.07.17 |
ABC Pvt Ltd sub-leases part of leased property to PQR Ltd. |
Sec 9(1), read with Sec 22 CGST Act |
RCM: Reverse charge Mechanism
FCM: Forward Charge Mechanism
SUB-RENTING / SUB-LEASING – REGISTRATION, DOCUMENTATION, AND TAXABILITY
Definition
Sub-renting or sub-leasing means leasing out the property (or part thereof) by a tenant/lessee to another party. The sub-lessor becomes a deemed service provider under GST.
Documents Required
- Original Rent/Lease agreement
- Sub-rent/sub-lease agreement clearly defines:
- Area/sub-part leased
- Tenure and rent/lease amount
- Consent of original landlord, if required
- GST registration certificate (if applicable)
- GST-compliant invoice by sub-lessor
GST Applicability & Registration
| Criteria | Sub-Lessor (Lessee acting as Lessor) |
| Is GST applicable? | Yes, if supplying rent/lease service to sub-lessee |
| Registration mandatory? | Yes, Additionally, Section 24(iii) mandates compulsory registration for any person required to pay tax under reverse charge or forward charge mechanisms |
| Taxability | Forward charge applicable at 18% |
| ITC Available? | Yes, if used for further taxable supplies |
| Turnover calculation | Include sub-lease income and other taxable supplies |
Note: As per Section 22 of the CGST Act, a person is required to register if aggregate turnover exceeds ₹20 lakh (₹10 lakh in special category states). Additionally, Section 24(iii) mandates compulsory registration for any person required to pay tax under reverse charge or forward charge mechanisms.
Illustrative Example
ABC Pvt Ltd rents a property for ₹1,00,000/month from Mr PQR (Unregistered individual) and sub-leases a portion to XYZ Pvt Ltd for ₹40,000/month.
- GST on original rent under RCM I.e. Rs 1,00,000 to be Paid by ABC Pvt Ltd
- GST on sub-lease: To be collected by ABC Pvt Ltd from XYZ Pvt Ltd under FCM @18%
III. INDICATIVE CLAUSE FOR RENT/LEASE AGREEMENT
“The rent/lease amount agreed herein is exclusive of any present or future indirect taxes including GST. In the event any tax, duty, cess, or levy becomes applicable during the tenure of this agreement, the same shall be borne by the Lessee/Lessor as applicable. The parties agree to comply with all GST provisions, including payment under Reverse Charge or Forward Charge Mechanism, as the case may be.”
KEY ISSUES & FAQs
Q1. If the lease agreement is not revised post-GST implementation, how should GST be applied?
A1. GST is applicable based on the actual nature of supply, regardless of whether the lease deed is updated.
Legal Ref: Sec 9(3), CGST Act; Circular 177/09/2022-GST
Q2. Is GST applicable if residential property is used for employee housing by a company?
A2. Yes. GST exemption applies only when residential property is used by individuals.
Legal Ref: Circular 177/09/2022-GST
Q3. What if the Landlord is State/Central Government
- If registered: GST under Forward Charge
- If unregistered: Tenant pays GST under RCM
Legal Ref: Sec 9(3), Entry 5A, Notif. No. 13/2017-CT (Rate)
Q4. Is GST applicable on long-term lease of land (e.g., 30 years+)?
A4. Yes, such lease is taxable under Forward Charge.
Legal Ref: Sec 9(1), Entry 5C, Notif. No. 12/2017-CT (Rate)
Q5. Is GST registration mandatory for landlords?
A5. Yes, if aggregate turnover (including rent/lease receipts) exceeds ₹20/10 lakhs.
Legal Ref: Sec 22 & 24(iii), CGST Act
NON-COMPLIANCE IMPLICATIONS
| Non-Compliance | GST Implication | Legal Reference |
| Non-payment under RCM | Interest @18% + Penalty | Sections 73/74, CGST Act |
| Wrong classification of transaction | GST demand + denial of ITC | Rule 31 + Circular 177/2022 |
| Govt (registered) fails to collect under FCM | Demand for tax, penalty and interest | Section 73, CGST Act |
| Landlord not registered despite turnover | Penalty u/s 122 (₹10,000 or tax evaded amount, higher) | Section 122(1), CGST Act |
LEGAL REFERENCES & SOURCES (Verbatim)
| Reference Type | Notification/Section/Circular | Description |
| Section | Section 9(1), CGST Act | “Tax shall be levied on intra-State supplies… and shall be paid by the taxable person.” |
| Section | Section 9(3), CGST Act | “Govt may notify categories of supply… tax shall be paid on reverse charge basis by recipient.” |
| Section | Section 22, CGST Act | Registration required if aggregate turnover exceeds ₹20/10 lakhs |
| Section | Section 24(iii), CGST Act | Compulsory registration for persons liable to pay tax under RCM |
| Notification | Notification No. 5/2022-CT (Rate) | Entry 5AA – RCM on renting of residential dwelling to registered person |
| Notification | Notification No. 13/2017-CT (Rate) | Entry 5 – Govt services including rent/lease to registered person when Govt is unregistered |
| Notification | Notification No. 12/2017-CT (Rate) | Entry 12 – Exemption for renting of dwelling for use as residence by individual |
| Notification | Notification No. 12/2017-CT (Rate)
Entry 5A |
Rent/lease by Govt to registered person under FCM |
| Notification | Notification No. 12/2017-CT (Rate)
Entry 41A |
Long-term lease of land to promoter treated as taxable supply under FCM |
| Circular | Circular 177/09/2022-GST | Clarification on applicability of GST on renting of residential dwellings to business entities |
KEY ACTIONS FOR BUSINESSES & PROFESSIONALS
- Landlords must evaluate registration obligation and update agreements.
- Tenants must maintain self-invoicing for RCM and comply with monthly returns.
- Agreements must include conditional tax clauses to cover forward/RCM shifts.
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DISCLAIMER
This flyer is intended solely for educational purposes. While all reasonable care has been taken in preparing the charts and examples in this document, in case of any unintentional error or omission, we sincerely regret the same. Users are requested to bring such instances to our notice for immediate correction. The content is based on provisions of the GST Act, applicable Circulars, Notifications, and Rules as on 12/05/2025, and reflects a simplified interpretation for awareness purposes. For specific legal advice, users should consult their GST Consultant or Chartered Accountant.
ACKNOWLEDGEMENT
Special thanks to Chartered Accountants, GST Consultants, and domain experts in the field of Indirect Taxes. Their simplified interpretations and sectoral insights have enabled the preparation of this flyer for awareness and professional use.
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