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GST on Renting: Understanding the Distinctions Between Residential and Commercial Properties
The application of GST (Goods and Services Tax) on rented properties in India depends largely on whether the property is residential or commercial and the GST registration status of the tenant and landlord. Since GST’s implementation on 1st July 2017, the tax landscape has seen key changes, especially concerning residential property rentals.
GST on Residential Property Rentals
Key Periods and Changes
- From 1st July 2017 to 17th July 2022: Renting out residential properties was GST-exempt under Notification 12/2017-Central Tax. This exemption applied across the board, meaning no GST was applicable regardless of whether the landlord or tenant was registered.
- From 18th July 2022 Onwards: A major shift occurred with Notification 04/2022-Central Tax. Now, if the tenant is registered under GST, they must pay 18% GST on rent under the Reverse Charge Mechanism (RCM). However, if the tenant is unregistered, the rental remains exempt from GST.
Conditions for GST Exemption on Residential Rentals
- If the rental is purely for residential purposes and the tenant is unregistered under GST, the rent is exempt from GST.
- When the tenant is registered under GST, the 18% GST is payable by the tenant under RCM.
Scenario Breakdown for Residential Rentals
| Scenario | 1st July 2017 – 17th July 2022 | 18th July 2022 Onwards |
|---|---|---|
| Both landlord and tenant are registered | GST-exempt | GST @18% payable by tenant (RCM) |
| Only tenant is registered | GST-exempt | GST @18% payable by tenant (RCM) |
| Tenant is unregistered | GST-exempt | GST-exempt |
| Property used for commercial purposes | GST @18% under forward charge | GST @18% under forward charge |
In summary, renting residential properties for residential use to unregistered tenants remains exempt from GST, while registered tenants must account for GST under RCM since July 2022.
GST on Commercial Property Rentals
For commercial properties, GST regulations differ markedly. Here, the tax applies consistently, though the responsibility for payment depends on the landlord’s registration status.
GST Applicability for Commercial Rentals
- When the landlord is registered: The landlord must charge 18% GST on rent under the forward charge mechanism, collecting and remitting it to the government.
- When the landlord is unregistered: Effective from 10th October 2024, the tenant becomes responsible for paying 18% GST on the rent under the RCM (per Notification 09/2024 – Central Tax). This applies regardless of the tenant’s GST registration status, though primarily concerns registered tenants who use commercial properties for their business needs.
Scenario Breakdown for Commercial Rentals
| Scenario | GST Applicability |
|---|---|
| Landlord is registered | GST @18% under forward charge |
| Landlord is unregistered | GST @18% payable by tenant (RCM) from 10th October 2024 |
| Property used for commercial purposes | GST @18% always applicable |
The GST rules on renting properties in India are structured to differentiate between the purpose (residential vs. commercial) and the GST registration status of both landlords and tenants. Residential rentals enjoy conditional exemptions when used solely for living purposes and when the tenant is unregistered. Conversely, commercial property rentals are consistently taxable, with the charge mechanism depending on the landlord’s registration status. These regulations emphasize a nuanced approach, balancing GST’s impact based on property type and parties’ compliance status.
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