Explore the GST on Commercial Rent in India

GST on Commercial rent is crucial for landlords and tenants in India. Since July 2017, renting commercial places is called a taxable service. It generally includes offices, warehouses, shops, and so on. This needs GST registration if the annual rent is over Rs. 20 lakh (Rs. 10 lakh in some states). The tax is suitable for landlords and tenants. A proper GST rate helps to manage Input Tax Credit (ITC) for official purposes. In this blog, you will learn about the GST rate on commercial rent.

GST on Commercial Rent in India

GST on commercial rate has an 18% rate in India. This applies in case the landlord's annual rental income is more than Rs, 20 lakh or Rs. 40 lakhs in some states. This GST rate is taxed on the rental amount. It includes offices, shops, warehouses, and so on. A GST registered tenants has the right to claim Input Tax Credit (ITC). The payments can be done either through the Forward Charge or the Reverse Charge Mechanism.

Pre-GST on Commercial Rent in India

In the pre-GST era, commercial property rentals attracted a 15% service tax. This applies when the annual rental income is more than Rs. 10 lakh. It is applicable for the renting of immovable property for business purposes. The threshold depended on total taxable service income. Previously, this suits to commercial spaces and residential properties is for commercial purposes. Residential properties that are used for dwelling purposes were GST exempt. Service tax paid on commercial rent can be claimed as an input credit. This applies to registered service providers.

However, before GST, the tax system was complicated. There were different local taxes. This was changed to a single GST system. So, it is recently taxed a 18% for commercial rent over Rs. 20 lakh.

GST rates on Commercial Rent with SAC code

Below is the table outlining the GST rates on commercial rent with SAC code. The SAC code means the Services Accounting Code in GST. Here is the rates:

How to Calculate GST on Commercial Rent?

You can calculate the GST on commercial rent at an 18% rate on the gross monthly rental amount. This is generally applicable if the landlord earns more than Rs. 20 lakh (or Rs. 10 lakh in special states). In case they are non-registered, the tenant may have to pay an 18% GST under the Reverse Charge Mechanism (RCM). Here is the applicable formula:

Rent Amount × 18% = GST

Reverse Charge Mechanism (RCM) on Rent

As per the GST, the Reverse Charge Mechanism (RCM) on rent generally needs a the tenant (lessee). They must pay 18% GST directly to the government instead of paying it to the landlord (lessor). This is applicable for a non-registered landlord and registered tenant. It suits to commercial property rental. The commercial property rental also known as an immovable property. This also applies to residential dwellings rented for business purposes.

Input Tax Credit (ITC)

Commercial rent has an 18% GST tax. Registered tenants are using the property for business through Input Tax Credit (ITC). Businesses need a valid tax invoice and landlord must be GST registered to use ITC.

GST Compliance for Landlords

GST on commercial rent is generally have an 18% rate. This can include offices, shops, and warehouses. This suits if the annual rental income is more than Rs. 20 lakh (or Rs. 10 lakh in special states). Landlords who are registered must collect 18% GST, issue invoices, and file returns. Since October 10, 2024, if a landlord is not registered and the tenant is registered, the tenant pays GST. They uses a method that is called Reverse Charge Mechanism (RCM).

Exemptions and Special Cases

Here are the key exemptions and special cases:

a) Small Landlords (Threshold Exemption)

If the aggregate all-India annual rental income from commercial property of the property owner is less than Rs. 20 lakhs. In some specific states, the limit is Rs. 10 lakhs. In such cases, no GST is applicable. So, the GST is not applicable.

b) Religious or Charitable Trust Exemption

Rent received by a registered charitable or religious trust from a commercial property is exempt if:

• Room rent is less than Rs. 1,000 per day.

• Shop/business space rent which is up to Rs. 10,000 per month.

• Community hall/open area rent which is also less than Rs. 10,000 per day.

c) Educational Institutions

Renting of property to educational institutions for educational purposes is generally exempt.

d) Residential Property for Personal Use

If there is a renting a dwelling to person dor personal residential use. This is mainly a GST exempt.

Conclusion

GST on commercial rent is essential for business purposes. There is an 18% GST rate applies to commercial property rentals. The rentals can include shops, offices, and warehouses. The rental income must be over the Rs. 20 lakh threshold (Rs. 10 lakh in special states. Registered tenants have the right to claim Input Tax Credit (ITC). If you still have any questions about GST, get in touch with Online Legal India.

FAQ

Q1. What is GST on Commercial Rent?

The GST on Commercial rent attracts an 18% rate. This is suitable for the rental of commercial spaces. The spaces can include offices, shops, or warehouses. This applies if the landlord is the GST-registered. It also applies if their annual rental income is more than the threshold limit of Rs. 20 lakh

Q2. Can I claim Input Tax Credit (ITC) on commercial rent paid?

Yes, you can claim Input Tax Credit (ITC) on commercial rent paid. This applies if you are a registered business or tenants using the commercial space for business purposes. This eliminates the overall tax burden.

Q3. Is GST on commercial rent applicable on the Security Deposit?

No, GST on commercial rent is not applicable on the Security Deposit. This is because a security deposit is not taxable under GST.

Q4. How is GST calculated on commercial rent?

The applicable GST rate is calculated on the monthly or annual rent. The GST rate is 18%.

Here is the formula:

Rent Amount × 18% = GST

Q5. What happens if I fail to pay GST on commercial rent?

If you fail to pay GST rate on commercial rent, it can lead to penalties. This means when a landlord fails to do registration on time, they will face penalties. In contrast, in case a tenants fails to pay under RCM, they will not get Input Tax Credit (ITC).

Disclaimer

This article is for informational purposes only and does not constitute legal advice. Online Legal India is a digital platform. If you require legal assistance, we strongly recommend consulting a qualified lawyer or law firm.