GST on Rent: Definition, Regulations & Calculation Guide

What is GST on Rent?

The GST implementation in India in 2017 has brought about several significant changes in the Indian taxation system related to rental income. Under the GST guidelines, renting out a residential or commercial property is a taxable service supply, and landlords and tenants must fulfill their tax obligations. Landlords must pay GST on rent, a percentage of their rental income. The tenants paying the rent must also pay GST on house rent. The landlord includes the tax amount in the total rent amount and deposits it to the Income Tax Department on behalf of the tenant.  

Tax on Rental Income in the Pre-GST Era

In the pre-GST era, landlords had to register for service tax if their rental income exceeded Rs. 10 Lakh per annum. Service tax is only applied to rental income on residential and commercial properties for commercial purposes. While service tax on commercial properties was 15%, that on residential properties did not apply. 

Types of GST on Renting

According to the GST Act, renting a property is a service supply. However, GST on rent applies only to properties given out on rent, lease, easement, or occupancy licenses. It applies to any residential, commercial, or industrial property used partly or wholly for a business purpose. Let’s look at the different types of GST on renting: 

GST on Renting of Residential Property

Properties rented out for personal capacity and residential purposes do not attract GST for home rent. However, they will attract GST if the tenant uses them commercially. 

Also Read: What is GST (Goods & Services Tax)? Meaning & Types of GST Returns 

GST on Commercial Property Renting

Any property rented out for commercial purposes attracts GST for commercial rent @ 18%. However, properties used for religious purposes are tax-exempted. Tax exemptions are available under the following conditions: 

• No GST for hotel room rent if the daily rent is less than Rs. 1,000. 
• No GST for shops if the monthly rent is less than Rs. 10,000. 
• No GST for community halls or open areas if the daily rent is less than Rs. 10,000. 

Benefits of GST on Rent

Although there are no direct benefits, GST on rent offers several potential advantages, including the following: 

• GST on rent ensures transparency in rental transactions by clearly defining the tax amount and reducing any chances of unreported income or hidden charges. 
• Registered businesses renting out commercial properties can claim Input Tax Credit on the GST paid on commercial rent. This credit offsets their GST liabilities on business activities, resulting in tax savings for the business. 
• The government may use the additional tax amount collected through GST for various infrastructure projects and public services.  

Also Read: What is CGST & SGST? Key Differences Between Them 

How to Calculate GST on Rented-Out Properties?

The GST on rent of immovable properties is 18%. The formula for calculating GST on rented-out properties is GST = (Rent x 18%)/100.  

For instance, if the monthly rent of a commercial property is Rs. 30,000, the GST on commercial rent will be  

GST = 30,000 x 18% = 5,400 

The landlord must pay Rs. 5,400 as GST on commercial rent. 

What are the ITC Provisions When GST is Charged on Rent?

The individual paying GST on rent can claim tax credit to pay other tax dues. If they fulfill all the required provisions, they can claim ITC on the GST payment. 

Also Read: Difference Between GSTR 2A and GSTR 2B 

Is ITC on Repairs and Renovation of Property Given on Rent Allowed?

GST payments for the repairs and renovation of a rented property are eligible for ITC under Section 17(5) of the CGST Act. However, it should not be capitalised in the landlord’s books. 

What is the Provision for a Tax Deduction on Income Tax for the Rented Property?

The property owner should collect GST from the tenant on the rent charged. If the rent amount exceeds Rs. 2.40 Lakh per year, the rent payer must deduct tax at source @ 10%. TDS applies to both residential and commercial properties. 

Also Read: GST and It's Various Facets 

How Does GST on Rent Impact the Eligibility for a Business Loan?

Aspiring borrowers must provide their GST returns for the financial year to apply for Business Loan online. Here is how GST on rent impacts their Business Loan eligibility: 

• Serves as income proof when applying for a Business Loan  
• Supports the application 
• Verifies loan eligibility  
• Helps lenders estimate the applicant’s financial standing, creditworthiness, and business stability  

Conclusion

Understanding the application of GST on rent is significant for both tenants and landlords, as it helps them make informed decisions while staying on the right side of the law. Whether it is to remain financially savvy or get tax benefits, knowing the rules helps keep good records and succeed in property rentals. Timely GST on rent payments improves Business Loan eligibility, allowing the necessary funds to be obtained without hassle. 

Frequently Asked Questions

1. Is commercial rent exempt from GST? 

GST is not applicable to shops if the monthly rent is less than Rs. 10,000. GST is applicable beyond that rent amount.  

2. Can I claim a tax credit (ITC) on GST paid for rent? 

Businesses paying GST can claim ITC on their rent payments. 

3. Who needs to register for GST when renting property? 

Property owners who rent out their property for commercial purposes and if the rent amount exceeds Rs. 20 Lakh per annum must register for GST when renting property. 

4. What is the GST rule on house rent? 

No GST on rent is payable if the property is used for residential purposes. 

5. What is the GST rate for guest house rent? 

No GST rate on hotel rooms is applicable if the daily rent is less than Rs. 1,000.  

6. How much rent is GST-free? 

As clarified in the 48th GST Council meeting, no GST on rent is applicable if the property is used for personal residential purposes.  

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