Understanding GST Implications for Renting Commercial and Residential Properties

Renting of Commercial Property

2.1 Taxability of Renting of Commercial Property

Renting of immovable property is categorized into two segments: commercial and residential. Under the Goods and Services Tax (GST) framework, the renting of commercial property is liable to GST via a forward charge mechanism since the inception of the GST Law. The critical determinant for tax liability is whether the service provider is a registered person. If the service provider is registered, they are obligated to charge GST on the tax invoice; if not, GST is not applicable.

2.2 Input Tax Credit (ITC) for Renting of Commercial Property

Input tax credit is accessible for renting both commercial and residential properties, provided the property is used in the course or furtherance of the business by a registered person. Therefore, it can be concluded that ITC is available whenever the conditions specified in Sections 16 and 17 of the Central Goods and Services Tax (CGST) Act, 2017, are satisfied.

2.3 Place of Business

Supplier's Perspective

If a rented property serves as a location from which the business typically supplies goods or services, it qualifies as a place of business under Section 2(85) of the CGST Act, 2017. This necessitates its registration as an additional place of business.

Recipient's Perspective

Should the rented property be where the business regularly receives goods or services, it too qualifies as a place of business. Following Section 2(85) of the CGST Act, 2017, this location must be registered as an additional place of business.

Extract of Law: Definition under Section 2(85) of CGST Act, 2017

"Place of business" includes:
(a) a site from which the business is ordinarily conducted, including warehouses or any location where a taxable person stores goods, receives, or supplies goods or services;
(b) a place where books of account are maintained;
(c) a site where a taxable person engages in business via an agent.

Renting of Residential Property

2.1 Taxability of Renting of Residential Property

Renting of residential property was exempted by Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017, when used solely for residential purposes. However, when residential property is utilized for business, GST applies.

This exemption was withdrawn effective July 18, 2022, through Notification No. 04/2022-Central Tax (Rate) dated July 13, 2022, following the 47th GST Council meeting. The exemption applies only in cases where a registered person rents the residential property for either business or residential use. Consequently, GST is applicable whenever the service recipient is a registered person. Additionally, under Notification No. 05/2022-Central Tax (Rate) dated July 13, 2022, if a registered landlord rents residential property to a registered tenant, the tenant is responsible for discharging the GST.

Moreover, it is clarified that if a registered landlord rents residential property to an unregistered tenant who uses the property for business purposes, the landlord must charge GST in the tax invoice under the forward charge mechanism.

2.2 Input Tax Credit (ITC) for Renting of Residential Property

Input tax credit is permitted for both commercial and residential property rentals, contingent upon their use in the course or in furtherance of a registered person's business. The nature of the property does not influence the availability of ITC; instead, its usage by the recipient is the key criterion for credit eligibility. Thus, ITC is available if the conditions articulated in Sections 16 and 17 of the CGST Act, 2017, are satisfied.

2.3 Place of Business

Supplier's Perspective

If the supplier is a registered person and the property is a location from which they ordinarily supply goods or services, it must be treated as a place of business per Section 2(85) of the CGST Act, 2017, and registered as an additional place of business.

Recipient's Perspective

If the recipient is a registered person and the property serves as a location where they routinely receive goods or services, it qualifies as a place of business under Section 2(85) of the CGST Act, 2017, requiring registration as an additional place of business.

Extract of Law: Definition under Section 2(85) of CGST Act, 2017:

"Place of business" includes:
(a) a site from which the business is ordinarily conducted, including warehouses or any location where a taxable person stores goods, receives, or supplies goods or services;
(b) a place where books of account are maintained;
(c) a location where a taxable person engages in business via an agent.

Summary Table of Renting Scenarios

Sl. No	Owner	Property	Use of Property	Tenant	GST	ITC
1	Registered	Commercial	Residence	Registered or Unregistered	GST (FCM)	Not Allowed (Personal Use)
2	Registered	Commercial	Business	Registered	GST (FCM)	Allowed (Business Use)
3	Unregistered	Commercial	Business	Registered	No GST	N/A
4	Unregistered	Commercial	Any use	Unregistered	No GST	N/A
5	Unregistered	Residential	Any use	Unregistered	No GST	N/A
6	Registered or Unregistered	Residential	Residence	Registered	GST (RCM)	Not Allowed (Personal Use)
7	Registered or Unregistered	Residential	Business	Registered	GST (RCM)	Allowed (Business Use)
8	Registered	Residential	Business	Unregistered	GST (FCM)	N/A
9	Registered	Residential	Residence	Unregistered	GST (Exempt)	N/A

Extract of Relevant Notifications

Old Provision
Serial No. 12 of amended Notification No. 12/2017 prior to July 18, 2022.

Sl. No	Chapter, Section, Heading, Group or Service Code	Description of Services	Rate (per cent.)	Condition
12	Heading 9963 or Heading 9972	Services by way of renting of residential dwelling for use as residence.	NIL	NIL

Current Provision
Serial No. 12 of amended Notification No. 12/2017 on or after July 18, 2022.

Sl. No	Chapter, Section, Heading, Group or Service Code	Description of Services	Rate (per cent.)	Condition
12	Heading 9963 or Heading 9972	Services by way of renting of residential dwelling for use as residence except where the residential dwelling is rented to a registered person.	NIL	NIL