GST on Rent: Residential & Commercial Property Taxation

Since July 1, 2017, the Goods and Services Tax (GST) regime in India has undergone several amendments concerning rental income from residential and commercial properties. Initially, renting a residential dwelling for personal use was exempt, while any other rental income was taxable at 18% under the Forward Charge Mechanism (FCM). The Reverse Charge Mechanism (RCM) was introduced on January 25, 2018, for immovable property rented by government entities to registered persons. Significant changes occurred on July 13, 2022, when residential dwelling rentals to registered persons became taxable under RCM, unless the registered individual used it for personal residence and not for their proprietorship business. Further refinements on January 1, 2023, clarified this exemption for individual proprietors. As of October 10, 2024, renting commercial property by an unregistered person to a registered person became subject to RCM. The latest amendment on January 16, 2025, exempted commercial property rentals by unregistered persons to registered persons opting for the composition scheme from RCM, while keeping it taxable for those under the normal scheme. These changes collectively delineate the tax liabilities based on property type, landlord-tenant registration status, and the purpose of the rental.

GST Taxation on Residential and Commercial Rent

 Wef 01.07.2017 (GST on Rental incomes):

Bullet points:

> If “residential dwelling” was rented out for use as “residence”, it will be exempt. The notification does not make any difference if the purpose of “residence” was for personal use or business use.

> Rental income from any place which was either not “residential dwelling” or was not used for “residence” was taxable @ 18% on FCM basis. Thus, residential dwelling for business purpose OR commercial place for residential purpose OR Commercial place for business purpose; all was taxable on FCM basis.

> Rental income was not under RCM at the time of inception of GST.

Change made wef 25/01/2018 by Notification 03/2018 CT(R): [RCM Notification]

Services supplied by the CG, SG, UT or LA by way of renting of immovable property to a person registered under the CGST will be taxed under RCM

Bullet points:

> Renting of “residential dwelling for the purpose of residence” by CG, SG, UT or LA to any person will remain exempt

> Renting of commercial property by CG, SG, UT or LA to regd person will be taxed under RCM

> Renting of commercial property by CG, SG, UT or LA to unregd person will be taxed under FCM

Change made wef 13/07/2022 by:

a) Notification 04/2022 CT(R) – Exemption Notification

b) Notification 05/2022 CT(R) – RCM Notification

Vide Notification 04/2022 CT(R), the exemption provided by Notification 12/2017 was amended and read as under:

“Services by way of renting of residential dwelling for use as residence, except where the residential dwelling is rented to a registered person”.

Vide Notification 05/2022 CT(R), a new RCM entry 5AA was inserted in original Notification 13/2017 CT(R), which read as under:

“Service by way of renting of residential dwelling by any person to any registered person”.

Effect of above Notifications wrt residential dwellings for use as residence:

Change made wef 01/01/2023 vide Notification 15/2022: [Exemption Notification]

Vide Notification 15/2022, amendment was made to Notification 04/2022. After amendment, the clause reads as under:

“Services by way of renting of residential dwelling for use as residence, except where the residential dwelling is rented to a registered person.

Explanation: For the purpose of exemption under this entry, this entry shall cover services by way of renting of residential dwelling to a registered person where, –

(i) the registered person is proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence; and

(ii) such renting is on his own account and not that of the proprietorship concern.”

Bullet points:

> If the regd person (Individual) is using the rented residential dwelling in his own personal capacity for his own residence, it will remain exempt;

> If the regd person (Individual) is using the rented residential dwelling on his own account and not for his business, it will remain exempt (for example: residential dwelling has been taken for family of the regd person but the regd person is not staying himself in that residential dwelling).

> If the regd person (Individual) is using the rented residential dwelling for his proprietorship concern, it will be taxable under RCM (for example: proprietor takes a residential dwelling for use as residence for his employees)

> If the regd person is other than Individual i.e firm, company etc, it will be taxable under RCM.

Changes made wef 10/10/2024 vide Notification 09/2024: [RCM Notification]

Vide Notification 09/2024, a new RCM entry 5AB was inserted, which read as under:

“Service by way of renting any property other than residential dwelling by any unregd person to a regd person” shall be taxable on RCM basis.

Bullet points:

> Prior to 10/10/2024, position of renting commercial property was as under:

> Wef 10/10/2024, position of renting commercial property is as under:

Change made wef 16/01/2025 vide Notification 07/2025 CT(R): [RCM Notification]

Vide Notification 07/2025 CT(R), RCM Entry 5AB was amended to read as under:

“Service by way of renting any property other than residential dwelling by any unregd person to a regd person, other than a person who has opted to pay tax under composition levy” shall be taxable on RCM basis.

Bullet points:

> If commercial property is let out by unregd person to a regd person under normal scheme, then rent will be taxed on RCM basis

> If commercial property is let out by unregd person to a regd person under composition scheme, then it will be exempt.

SUMMARY of taxability of rent :