Summary: The Goods and Services Tax (GST) has introduced distinct regulations for renting residential and commercial properties in India. Generally, rentals for residential properties are exempt from GST unless the property is rented to a registered person. In such cases, the registered tenant must discharge GST under the Reverse Charge Mechanism (RCM). As of July 18, 2022, this provision applies to residential rentals from any person to registered individuals. Conversely, commercial rentals are subject to GST, and a recent amendment effective October 10, 2024, expands the RCM to include rentals of commercial properties when rented by unregistered persons to registered persons. This change aims to mitigate revenue loss identified by the GST Council during its 54th meeting. The taxability of rentals is clarified through various scenarios: exempt rentals occur when an unregistered supplier rents residential property to another unregistered individual; forward charge mechanisms (FCM) apply when registered suppliers rent to unregistered recipients; and RCM is applicable for rentals between registered persons. To further clarify these provisions and interpretations, additional guidance from the CBIC is anticipated. Understanding these distinctions is crucial for landlords and tenants to navigate the complexities of property rentals under the GST framework.
Introduction: The Goods and Services Tax (GST) has significantly transformed the taxation landscape in India, impacting various sectors, including real estate. When it comes to renting properties, the GST implications differ for residential and commercial spaces. While residential property rentals are generally exempt from GST under certain conditions, GST applies to commercial rentals, affecting both landlords and tenants. This article delves into the GST framework on property rentals, highlighting taxability, exemption and compliance requirements for property owners and businesses alike. Understanding these provisions is crucial for navigating the complexities of renting under the GST regime.
EXEMPTION ENTRY
As per Entry No. 12 of Notification No. 12/2017-Central Tax(Rate) dated 28-06-2017, Service by way of renting of residential dwelling for use as residence are exempt from levy of GST.
However, no such exemption is available in case where the residential dwelling is rented to a registered person.
RCM ENTRIES
As per Entry No. 5AA of Notification No. 13/2017-Central Tax(Rate) dated 28-06-2017, Service by way of renting of residential dwelling by ANY PERSON to a registered person is subject to Reverse Charge Mechanism (‘RCM’). This entry was applicable w.e.f. 18th July 2022.
The above entry implies that the registered recipient, availing services of renting of residential property, is supposed to discharge GST on RCM basis. In this case RCM is applicable even if the supplier is unregistered or the property is used for commercial purposes.
Recently, Entry No. 5AB is added to the Notification for levying RCM on commercial properties. The said entry states that RCM is applicable on Service by way of renting of any property other than residential dwelling by unregistered person to a registered person. This entry is applicable w.e.f. 10th October 2024.
Notably, Entry No 5AB was introduced pursuant to recommendations made by GST Council in its 54th meeting held on 9th September 2024 wherein it was recommended to bring renting of commercial property by unregistered person to a registered person under Reverse Charge Mechanism (RCM) to prevent revenue leakage.
On a combined reading of Entry No. 5AB with the relevant GST Council recommendations, it can be inferred that Reverse Charge Mechanism (RCM) is applicable on the rental of commercial immovable properties (such as offices, shops, warehouses, malls, etc.) when rented by an unregistered person to a registered person. However, an alternative interpretation suggests that RCM may apply to all types of commercial properties, including movable ones. This alternative interpretation stems from the words ‘any property’ as stated in the entry.
In this context, further clarification from the CBIC is awaited to resolve the ambiguity.
VARIOUS SCENARIOS OF TAXABILITY
The above discussion is summarised in tabular format for easy and better understanding of the aforesaid provisions.
The below table summarizes leviability of GST on renting of residential property in various scenarios:
| USE OF PROPERTY | SUPPLIER | RECIPIENT | TAXABILITY |
| Residential | Registered/Unregistered | Unregistered | Exempt |
| Commercial | Registered | Unregistered | FCM |
| Residential/Commercial | Registered/Unregistered | Registered | RCM |
The below table summarizes leviability of GST on renting of commercial property in various scenarios:
| USE OF PROPERTY | SUPPLIER | RECIPIENT | TAXABILITY |
| Residential/Commercial | Registered | Registered | FCM |
| Residential/Commercial | Unregistered | Registered | RCM |
| Residential/Commercial | Registered | Unregistered | FCM |
FCM: Tax is to be paid by supplier under Forward Charge Mechanism
RCM: Tax is to be paid by recipient under Reverse Charge Mechanism
Frequently Asked Questions (FAQs)
Q1. Is GST applicable on the rent of residential property?
Ans. Renting of a residential dwelling for use as a residence is generally exempt from GST under Entry No. 12 of Notification No. 12/2017-Central Tax (Rate). However, this exemption is not available where the residential dwelling is rented to a registered person, in which case GST may be payable under the Reverse Charge Mechanism (RCM).
Q2. When is GST payable under the Reverse Charge Mechanism (RCM) on residential property rentals?
Ans. With effect from 18 July 2022, GST under RCM applies where a residential dwelling is rented by any person (whether registered or unregistered) to a registered person. In such cases, the registered recipient is liable to pay GST under the Reverse Charge Mechanism.
Q3. What is the GST treatment for renting commercial property?
Ans. Commercial property rentals are generally taxable under GST. Where the supplier is registered, GST is payable by the supplier under the Forward Charge Mechanism (FCM). Additionally, from 10 October 2024, RCM applies where an unregistered person rents commercial property to a registered person.
Q4. Why was RCM introduced for commercial property rented by unregistered persons?
Ans. The Reverse Charge Mechanism for commercial property rented by an unregistered person to a registered person was introduced following the recommendations of the 54th GST Council Meeting to prevent revenue leakage. However, further clarification from the CBIC is awaited regarding the scope of the expression “any property” used in the relevant notification.
Q5. Who is liable to pay GST under the Forward Charge Mechanism (FCM) and Reverse Charge Mechanism (RCM) for property rentals?
Ans. Under the Forward Charge Mechanism (FCM), the registered supplier is responsible for paying GST. Under the Reverse Charge Mechanism (RCM), the registered recipient is liable to pay GST in the specified cases, such as residential property rented by any person to a registered person and commercial property rented by an unregistered person to a registered person.
Disclaimer:
The information contained herein is not intended to be a source of advice and it is only for the convenience and educational purposes for the user. This is not an opinion to anyone and author is/ will not be responsible to anyone for any matter whatsoever regarding any reliance placed on this article.
Author Bio
SIR
WHETHER THE DEALERS WHO ARE DOING EXEMPTED GOODS BUSINESS ONLY ALSO LIABLE TO PAY RCM ON RENT OR NOT
In case recipient is unregistered, generally the supply is either exempt or under Forward Charge. Hence, RCM not applicable.
Hi, thank you for the details explanation, could you please update if proprietorship is registered under GST for business and property owned by individual on personal name, has given commercial property on rent to business. In that case GST applicable on rent?
Sir, my client is a pensen holder and he have commercial property and get the Rs.3 lakh rent, tenents request for gst Invoices for rent payment, please guide, required the GST Registration
I understand that your client has not obtained registration till date and is providing only rental services of a commercial property for Rs 3 Lakh per annum.
In this case, if the tenant is registered under GST then he will discharge GST under RCM. Your client does not require GST registration or payment of GST on FCM basis.
can my tenant use let out address for GST registration?
what precautions to taken by me (landlord) while undergoing rent agreement.
I am a registered under composition Scheme for my wooden furniture manufacturing and sales. I have a commercial building which I rented out to Private Banker ( which is registered under regular shceme. ). My rental income is less than 1.5 lakh. In this case who is responsible for paying the GST.
In this case, forward charge mechanism is applicable as the supplier is registered under GST. So, supplier has to discharge the GST liability on the rental income.
Thanks for your informative article.
Sir my query is :
if a person is registered in gst running his business from residential unit(pagri property).But the rent paid to landlord is not charged to profit and loss a/c.In such circumstances whether he is liable for RCM.
Sir in my opinion, GST is to be discharged by the recipient irrespective of whether expense is charged to P&L A/c or not. See Entry No. 5AA for more info.
I am registered dealer under GST but business is non GST items(sale of Beer & wine). I have paid Rs 1 lac per month by way of Rent of leased building. whether I am liable to pay GST on Rent paid by way of RCM ?. if liable to pay can eligible toclaim refund ?.
In case the supplier (landlord) of the commercial property is unregistered, you have to pay GST under RCM.
Further, input tax credit of this GST is not allowed in terms of section 17(2) of CGST Act.
I am GST resgitered in UP and taken a commercial property in Bihar from unregistered owner. how GST will be taken care as I am not registered in Bihar
On 22nd October 2024, CBIC has issued a Corrigendum to the RCM Notification stating that the phrase “any property” is to be read “any immovable property”.
Accordingly, RCM will apply only in case of commercial immovable properties.
we have given a shop on rent who is registered under GST. THE shop is in our personal name & we don’t do any business & not registered any GST. REnt is only 20000 pm. Please advise if we have to pay any tax. Thanks
In this case, GST liability is to be discharged by the recipient as he is registered under GST. Supplier is not required to collect/pay taxes in this case.
what is minimum rent for rcm
Sir there is no threshold limit prescribed under GST Law for applicability of RCM on renting of property. Therefore, RCM is applicable irrespective of rent amount.