GST on rent: commercial vs residential

Renting of a residential dwelling for use as a residence is exempt from GST, but reverse charge applies when it is let to a GST-registered person. Renting of commercial or immovable property for business is taxable at 18%, generally on forward charge by the landlord, with recent reverse-charge changes for unregistered landlords.

Residential renting

Renting of a residential dwelling for use as a residence is exempt. However, since 18 July 2022 (Notification 05/2022-CT(R)), when such a dwelling is rented to a registered person, the registered tenant must pay GST at 18% under reverse charge. A later clarification carved out the case where the property is rented to a registered person in their personal capacity for their own residence — then it remains exempt. Notification 09/2024-CT(R) brought renting of commercial property by unregistered landlord to registered tenant under RCM. Confirmed in force FY 2026-27. Verify the current carve-outs.

Commercial renting

Renting of immovable property for commercial or business use is a taxable supply at 18%. The landlord, if registered, charges GST on forward charge and the tenant claims ITC (renting for business is not a blocked credit). From 10 October 2024, renting of commercial property by an unregistered landlord to a registered tenant was brought under reverse charge (Notification 09/2024-CT(R)). Notification 09/2024-CT(R) brought renting of commercial property by unregistered landlord to registered tenant under RCM. Confirmed in force FY 2026-27. Verify the effective scope.

Quick reference

ITC and practical points

GST on commercial rent used for business is creditable; GST paid under RCM on rent is also creditable in the tenant's hands if used for taxable business. Keep the rent agreement clear on GST responsibility, and where RCM applies, the tenant must self-assess, pay in cash and issue a self-invoice for unregistered landlords.

The decision matrix

The 2024 change is the one that catches tenants: a registered business renting a shop or office from an unregistered individual landlord must now self-invoice and pay 18% under reverse charge, then claim ITC subject to Section 17(5). Composition-scheme tenants bear this RCM as a pure cost, with no credit.

Worked example: the RCM cash-flow effect

A registered trading company rents an office at Rs.1,00,000 per month from an unregistered landlord. Monthly RCM: Rs.18,000 CGST+SGST paid in cash (RCM cannot be settled from the credit ledger), claimed as ITC the same month. Net P&L cost: nil for a full-credit business, but Rs.18,000 per month of working capital cycles through the ledgers, and for businesses with blocked or restricted credit (17(5), Rule 42 apportionment for exempt supplies) part of it becomes a real cost. Contract drafting response: prefer registered landlords, or price the RCM burden into the rent.

Landlord-side positions and TDS overlay

• A landlord whose only taxable supplies are covered by tenant-side RCM can surrender registration — but mixed portfolios (some registered tenants, some not) keep forward-charge obligations alive.
• Renting is a supply of service (SAC 9972); commercial landlords crossing Rs.20 lakh aggregate turnover must register even if a single tenant pays under RCM.
• Municipal taxes borne by the landlord reduce the income-tax annual value but do not reduce the GST value; recovery of property tax from the tenant forms part of the rent consideration.
• TDS runs in parallel: 194-I at 10% (or 194-IB at 2% for uncovered individuals) on the rent excluding GST where separately shown — GST and TDS are independent levies on the same flow.
• Security deposits: refundable deposits are not consideration; adjusted amounts become taxable at adjustment.

Track the notification trail (13/2017-CTR as amended by 05/2022 and 09/2024) at cbic.gov.in.

Documentation set for each scenario

• Forward-charge commercial lease: landlord's tax invoice with SAC 9972, tenant's GSTIN, and place-of-supply = property location (Section 12(3) IGST Act — always the state where the property sits, so a Mumbai property owned by a Delhi landlord bills CGST+SGST of Maharashtra, requiring the landlord to hold Maharashtra registration where fixed-establishment tests are met).
• RCM scenarios: tenant raises a self-invoice under Section 31(3)(f), pays in cash, records in GSTR-3B Table 3.1(d), claims ITC in Table 4(A)(3), and maintains the RCM register — the document trail auditors ask for first.
• Exempt residential letting: retain the lease deed showing personal-residence use; landlords with mixed portfolios apply Rule 42 apportionment to common ITC.

Finally, distinguish renting from adjacent supplies: paying-guest accommodation and hostels have their own exemption history (litigated through 2023-24 advance rulings), hotel accommodation is a different rate schedule entirely, and renting with substantial services (serviced offices) can become a composite supply whose character follows the principal element. Where the arrangement is anything other than a bare lease, re-run the classification before assuming the rent analysis applies.