GST on Renting of Immovable Property: Applicability, Exemptions & Taxability

The Goods and Services Tax (GST) on renting of immovable property is governed by specific provisions under the CGST Act, 2017. Renting or leasing immovable property is considered a supply of services as per Section 7 of the Act, and accordingly, it attracts GST. The applicability of GST varies based on the type of property (residential or commercial), the nature of the use (personal or business), and whether the tenant or landlord is registered under GST.

1. Nature of Supply for Renting of Immovable Property

Under Section 7 of the CGST Act, 2017, the renting of immovable property is considered a supply of services, taxable under GST. The applicability of GST is differentiated based on:

• Commercial Properties: Taxable at 18% GST.
• Residential Properties: May be exempt or taxable depending on the nature of use.

2. Key Legal Provisions Governing Renting of Immovable Property

• CGST Act, 2017: Section 7, Section 9(3), and Section 22 (for registration requirements).
• Notification No. 11/2017-Central Tax (Rate): Specifies GST rates applicable to renting services.
• Notification No. 12/2017-Central Tax (Rate): Lists exemptions, including residential properties used for residential purposes and certain charitable uses.
• Notification No. 05/2022-Central Tax (Rate): Introduced RCM on renting of residential properties for business purposes.
• Circular No. 177/09/2022-GST: Clarified the taxation of residential properties rented for business purposes.

3. Applicability of GST on Different Types of Renting Transactions

4. Input Tax Credit (ITC) on Renting of Immovable Property

Both landlords and tenants may be eligible for Input Tax Credit (ITC) on GST paid for renting immovable property, subject to specific conditions:

• Landlords:

a) Landlords renting out commercial property are eligible to claim ITC on GST paid on inputs and input services (e.g., maintenance, repairs, etc.), provided the property is used for business purposes.

b) No ITC can be claimed on properties used for exempt supplies (e.g., residential properties rented for residential purposes).

• Tenants:

a) Tenants registered under GST and renting commercial property for business use can avail ITC on the GST paid on rent, as long as the property is used for furtherance of business.

b) In case of RCM, the tenant can claim ITC on the GST they pay under RCM, provided the rented property is used for taxable supplies or business operations.

Relevant Provisions:

• Section 16 of the CGST Act, 2017 governs eligibility for ITC.
• Section 17 of the CGST Act, 2017 outlines restrictions on ITC for exempt supplies.

5. Reverse Charge Mechanism (RCM) and Forward Charge Mechanism (FCM)

• Forward Charge Mechanism (FCM): In most cases, the landlord is responsible for collecting and remitting GST. This applies to commercial properties and leasing of property by registered landlords.
• Reverse Charge Mechanism (RCM): The liability to pay GST shifts to the recipient (tenant) in specific cases. Notably:

a) Renting of residential property for business purposes by a registered tenant is subject to RCM. Here, the tenant is responsible for paying GST (Notification No. 05/2022).

b) Renting of immovable property by unregistered landlords to registered businesses also falls under RCM, with the tenant bearing the liability (Section 9(3) of the CGST Act).

6. Key Exemptions on Renting of Immovable Property

Several exemptions apply to the renting of immovable property under Notification No. 12/2017-Central Tax (Rate), such as:

• Residential Property for Residential Use: Renting a residential dwelling for residential purposes is fully exempt from GST.
• Charitable and Religious Trusts: Renting property by registered charitable or religious trusts may be exempt if the property is used for specific exempt purposes such as running educational institutions, hospitals, or religious worship.
• Agricultural Land: Leasing of agricultural land for farming purposes is exempt from GST, as per Entry No. 54 of the notification.

7. Place of Supply for Renting of Immovable Property

The place of supply for renting immovable property is determined under Section 12(3) of the IGST Act, 2017. It stipulates that the place of supply for the renting of immovable property is the location of the property itself. Further, it is mindful to note that if a recipient lets out a property on rent in any particular state but is registered in a state other than such state, then ITC (Input Tax Credit) against such rented property will not be availed to the recipient. This is because ITC can only be claimed in the state where the place of supply is located and where the recipient is registered.

For example:

• If a landlord is registered in Delhi and rents out a property in Haryana, the place of supply is the location of the property, i.e., Haryana. In this case, even if the recipient is registered in a different state, i.e. Delhi, the Input Tax Credit cannot be claimed by the recipient in Delhi since the place of supply is Haryana.

8. Registration Requirements for Landlords

Under Section 22 of the CGST Act, 2017, landlords are required to register under GST if their aggregate turnover, including rental income, exceeds ₹20 lahk in a financial year (or ₹10 lakh for special category states).

Landlords who meet the turnover threshold must collect GST on taxable supplies, including rent for commercial property, and remit it to the government.

9. GST on Security Deposits

Security deposits taken by landlords while renting immovable property are not considered taxable unless they are adjusted as consideration for the supply of services. For instance, if part of the deposit is used to cover rent or damages, the adjusted portion becomes subject to GST.

10. Conclusion

The taxation of renting immovable property under GST is comprehensive, with clear provisions for commercial and residential properties. While residential properties rented for personal use are exempt, commercial properties and residential properties used for business purposes are taxable, with different mechanisms such as FCM and RCM applicable depending on the nature of the transaction. Proper compliance, especially understanding registration thresholds, input tax credit eligibility, and exemptions, is essential for landlords and tenants alike.

About the Author

The author is CA Amandeep Singh is a distinguished expert in litigation and advisory services, with a specialized focus on GST and other indirect tax laws. With extensive experience representing clients in complex tax disputes, he has successfully assisted large, medium, and small enterprises in navigating contentious tax matters and achieving favourable outcomes. His deep understanding of tax litigation and strategic approach to resolving disputes makes him a trusted advisor for businesses facing regulatory challenges and compliance issues in indirect taxation.