GST on Rent: Commercial and Residential Property Rules, RCM, and ITC for 2026

If your business rents an office, warehouse, shop, or even a residential flat for an employee, GST applies. The question is never whether GST exists on rent. The question is who pays it, under what mechanism, and whether you can claim the credit. The answer depends on three variables: the type of property (commercial or residential), the registration status of the landlord, and the registration status of the tenant.

This guide covers the current rules as of 2026, including the two major RCM expansions that changed the landscape: one for residential rent in July 2022 and another for commercial rent in October 2024.

Is Rent Taxable Under GST?

Yes. Schedule II of the CGST Act, 2017 explicitly classifies lease, tenancy, easement, or licence to occupy land or building as a supply of service. This means renting immovable property for business attracts GST at the standard service rate of 18%.

There are two clear exemptions:

1. Residential dwelling rented for residential purpose to an unregistered person: Fully exempt from GST. A salaried individual renting a flat to live in pays no GST on the rent.
2. Agricultural land: Renting of land for agricultural purposes is exempt.

Everything else, including commercial property, residential property rented to a registered person, and residential property used for commercial purposes, falls within the GST net.

GST on Commercial Property Rent

When a business rents office space, a retail shop, a factory, a godown, or any non-residential property, GST applies at 18%. The mechanism depends on the registration status of both parties.

Scenario 1: Landlord Is GST-Registered

The landlord charges 18% GST on the rent invoice under Forward Charge Mechanism (FCM). The tenant pays the rent plus GST to the landlord, who deposits the tax with the government. The tenant claims ITC on this GST if the rented property is used for making taxable supplies.

Example: Your company rents an office for Rs 1,00,000 per month from a registered landlord. The landlord issues an invoice for Rs 1,00,000 + Rs 18,000 GST = Rs 1,18,000. You pay Rs 1,18,000 to the landlord and claim Rs 18,000 as ITC in your GSTR-3B.

Scenario 2: Landlord Is Unregistered, Tenant Is Registered (Normal Scheme)

From October 10, 2024, this scenario falls under Reverse Charge Mechanism (RCM) as per Notification No. 09/2024-Central Tax (Rate). Entry 5AB of the RCM table covers "service by way of renting of any property other than residential dwelling" supplied by an unregistered person to a registered person.

The tenant pays the rent to the landlord (without GST) and separately deposits 18% GST under RCM through GSTR-3B. The tenant can then claim ITC on this self-assessed tax.

Example: Your business rents a warehouse for Rs 50,000 per month from an unregistered individual. You pay Rs 50,000 to the landlord. You self-assess Rs 9,000 GST (18% of Rs 50,000) in Table 3.1(d) of GSTR-3B and pay it through the cash ledger. You then claim Rs 9,000 as ITC in Table 4(A)(3).

Scenario 3: Both Parties Are Unregistered

No GST applies. Neither party has a GST obligation.

Scenario 4: Tenant Is a Composition Dealer, Landlord Is Unregistered

Composition dealers are exempt from RCM on commercial rent from unregistered landlords. Notification No. 07/2025-Central Tax (Rate), effective January 16, 2025, excluded composition taxpayers from Entry 5AB. Any GST paid by composition dealers under RCM during the interim period (October 10, 2024 to January 16, 2025) has been regularized on an "as-is-where-is" basis, meaning no penalties for non-compliance during that window.

GST on Residential Property Rent

Residential property has its own set of rules, which changed significantly on July 18, 2022.

Before July 18, 2022

Renting a residential dwelling for any purpose was fully exempt from GST. It did not matter whether the tenant was registered or unregistered, or whether the property was used for residential or commercial purposes.

From July 18, 2022 Onwards

Notification No. 05/2022-Central Tax (Rate) removed the blanket exemption. The revised position:

Tenant is unregistered: Rent on residential dwelling remains exempt from GST. No change for the common salaried tenant renting a flat to live in.

Tenant is registered under GST: The tenant must pay 18% GST under RCM, regardless of whether the landlord is registered or not. This is covered under Entry 5AA of the RCM table.

Personal use exception: If a registered person (say, a proprietor) rents a residential flat in their personal capacity for their own residence (not on account of the business), GST does not apply. The key test is whether the rental is for business or personal dwelling. If the rent is booked as a business expense, claimed as a deduction, or reimbursed by the firm, it is treated as a business transaction and RCM applies.

RCM on Rent: The Complete Picture

Reverse Charge on rent operates through two separate entries in the RCM notification:

How RCM on Rent Works in Practice

1. Pay the landlord: Pay the agreed rent without GST. The landlord's invoice (or receipt) shows only the base rent.
2. Self-assess GST: Calculate 18% on the rent amount. For intra-state supply, split as 9% CGST + 9% SGST. For inter-state, apply 18% IGST.
3. Issue a self-invoice: Under Section 31(3)(f) of the CGST Act, the recipient must issue a self-invoice for RCM supplies. Include the landlord's details, SAC code 997212, and the GST amount.
4. Report in GSTR-3B: Show the RCM liability in Table 3.1(d) and pay it through the electronic cash ledger (not ITC).
5. Claim ITC: After paying the RCM tax, claim it as ITC in Table 4(A)(3) of the same GSTR-3B or subsequent returns, subject to Section 16 conditions.

Input Tax Credit on Rent: What You Can and Cannot Claim

ITC Available

• GST paid on commercial rent (FCM or RCM) to the extent the property is used for making taxable outward supplies.
• GST paid on residential rent under RCM, provided the rental is booked as a business expenditure and the business makes taxable supplies.
• GST paid on repairs, maintenance, brokerage, and interior fit-out of the rented commercial property (to the extent not capitalised as immovable property).

ITC Blocked

• Section 17(5)(d) blocks ITC on goods or services used for construction of immovable property on the taxpayer's own account (other than plant and machinery). If a tenant incurs construction costs to build a permanent structure on rented land, ITC on that construction is blocked unless the structure qualifies as "plant" based on the Supreme Court's functionality test.
• Composition dealers cannot claim any ITC, including on rent paid under RCM.
• If the rented property is used for making exempt supplies, ITC must be reversed proportionally under Rule 42/43.

ITC Reversal for Mixed Use

If a registered person uses a rented property partly for taxable supplies and partly for exempt supplies (or personal use), ITC must be apportioned under Rule 42. Only the portion attributable to taxable supplies is eligible as ITC.

Place of Supply for Rent

The place of supply for services related to immovable property is the location of the property, as per Section 12(3) of the IGST Act, 2017. This determines whether the transaction is intra-state (CGST + SGST) or inter-state (IGST).

Example: A company registered in Maharashtra rents a warehouse located in Karnataka. The place of supply is Karnataka. Since the supplier's location (Karnataka, if the landlord is in Karnataka) and the place of supply are in the same state, it is intra-state for a local landlord. But if the landlord is registered in Maharashtra, it becomes inter-state supply and IGST applies.

For RCM where the landlord is unregistered, the place of supply is the property location. The tenant's state of registration determines whether CGST+SGST or IGST applies.

GST Registration Threshold for Landlords

A landlord is required to register under GST only if their aggregate turnover in a financial year exceeds:

• Rs 20 lakh in normal category states
• Rs 10 lakh in special category states (Manipur, Mizoram, Nagaland, Tripura, Meghalaya, Arunachal Pradesh, Sikkim, Uttarakhand, Himachal Pradesh)

Aggregate turnover includes all taxable supplies, exempt supplies, exports, and inter-state supplies. If a landlord's only income is commercial rent below Rs 20 lakh, they remain unregistered, and the registered tenant pays GST under RCM.

Residential rent to unregistered persons is exempt and does not count towards aggregate turnover for registration purposes.

How to Report Rent GST in Returns

For the Tenant (Under RCM)

For the Landlord (Under FCM)

Self-Invoice Requirements

When paying GST under RCM, the tenant must issue a self-invoice containing:

• Tenant's own GSTIN and address
• Landlord's name and address (PAN if available)
• SAC code: 997212 (rental or leasing services involving own or leased non-residential property) or 997211 (residential property services)
• Taxable value (rent amount)
• GST amount split into CGST/SGST or IGST
• The words "Tax payable under reverse charge" on the invoice

Quick Reference: GST on Rent Scenarios

Worked Example: Monthly Rent Compliance for a Small Business

Ravi runs a GST-registered trading business in Hyderabad. He rents two properties:

1. Office space at Rs 60,000/month from an unregistered landlord
2. A residential flat at Rs 25,000/month for his sales manager, with the lease in the company's name

Office (Commercial, Unregistered Landlord, RCM)

• Pay landlord: Rs 60,000
• GST under RCM: Rs 60,000 x 18% = Rs 10,800 (Rs 5,400 CGST + Rs 5,400 SGST)
• Report Rs 10,800 in GSTR-3B Table 3.1(d)
• Pay Rs 10,800 through cash ledger
• Claim Rs 10,800 ITC in Table 4(A)(3)

Residential Flat (Registered Tenant, RCM)

• Pay landlord: Rs 25,000
• GST under RCM: Rs 25,000 x 18% = Rs 4,500 (Rs 2,250 CGST + Rs 2,250 SGST)
• Report Rs 4,500 in GSTR-3B Table 3.1(d)
• Pay Rs 4,500 through cash ledger
• Claim Rs 4,500 ITC in Table 4(A)(3), since the flat is a business expense

Total monthly RCM liability: Rs 15,300 Net cash impact: Zero (after ITC set-off against output tax in future months)

Ravi must issue self-invoices for both rentals and maintain them for audit.

Income Tax TDS on Rent: A Separate Obligation

GST on rent and income tax TDS on rent are independent obligations. Under Section 194-I of the Income Tax Act (now Section 393 under the new Act, 2025), if annual rent exceeds Rs 2,40,000, the tenant must deduct TDS at:

• 10% on rent for land, building, or furniture
• 2% on rent for plant, machinery, or equipment

TDS is deducted on the base rent amount, excluding GST. If rent is Rs 1,00,000 and GST is Rs 18,000, TDS at 10% is Rs 10,000 (on Rs 1,00,000, not Rs 1,18,000). This was clarified by CBDT Circular No. 23/2017.

Frequently Asked Questions

Do I need to pay GST if I rent my house to a salaried individual? No. Residential dwelling rented to an unregistered person for residential purpose is exempt from GST. No registration required for this activity alone.

I am a freelancer registered under GST. I rent a flat to live in. Do I pay GST on my rent? Not if the flat is rented in your personal capacity for your own residence. The personal use exception under Entry 5AA means no GST applies. However, if you claim the rent as a business deduction in your ITR, the department may argue the rental is a business transaction subject to RCM.

My landlord is already charging me 18% GST on commercial rent. Do I still pay under RCM? No. If the landlord is registered and charging GST under FCM, the tenant does not separately pay under RCM. RCM on commercial rent applies only when the landlord is unregistered.

Can a composition dealer claim ITC on rent? No. Composition dealers cannot claim ITC under any circumstance. However, they are also exempt from paying RCM on commercial rent from unregistered landlords (since January 16, 2025).

Is there a minimum rent amount below which GST does not apply? No. Under RCM, there is no threshold. Even if monthly rent is Rs 5,000, a registered tenant must pay 18% GST under RCM if the conditions are met. The Rs 20 lakh threshold applies only to the landlord's registration obligation, not to the tenant's RCM liability.

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The GST rules on rent covered in this guide are based on the CGST Act, 2017 and amendments through Notification No. 07/2025-Central Tax (Rate) dated January 16, 2025. Key notifications referenced: 05/2022-CT(Rate) for residential rent RCM, 09/2024-CT(Rate) for commercial rent RCM, and 07/2025-CT(Rate) for composition scheme exemption. For the latest position, refer to the CBIC GST portal and ClearTax GST on Rent guide. Businesses should consult their tax advisor for case-specific applicability.