What is GST on Commercial Rental Income?

Goods and Services Tax (GST) applies to rental income earned from leasing commercial properties. If your total rental income exceeds ₹20 lakh annually (₹10 lakh in special category states), you are liable to register under GST and charge 18% tax on the rent collected. Understanding GST compliance is crucial to avoiding penalties and ensuring smooth financial operations.

Key Aspects of GST on Rental Income

✅ GST Rate: 18% on commercial rent
✅ Registration Threshold: ₹20 lakh (₹10 lakh for special category states)
✅ Input Tax Credit (ITC): Available for GST paid on property maintenance and related expenses
✅ Tax Collection: Landlords must collect and remit GST on rental payments
✅ Exemptions: Residential properties rented for personal use are exempt
✅ Due Date for Filing: Monthly or quarterly depending on turnover

Who Needs to Pay GST on Rental Income?

✔️ Property Owners: Renting out commercial spaces
✔️ Businesses Leasing Property: Required to deduct TDS where applicable
✔️ Co-working Space Owners: Subject to GST compliance
✔️ Commercial Shops & Office Rentals: Must charge GST if turnover exceeds limits
✔️ Retail Outlets in Malls: Malls leasing shops are liable to charge GST
✔️ Corporations Renting Business Spaces: GST applies if renting property for office use

How to Calculate GST on Rental Income?

Example: If monthly rent = ₹1,00,000, then:

• GST at 18% = ₹18,000
• Total Rent Payable = ₹1,18,000

The landlord must collect this amount and deposit it with the government.

Example 2 (Co-working Space Owner):
If you rent 10 seats for ₹5,000 each, total rent = ₹50,000

• GST at 18% = ₹9,000
• Total Payable by Tenant = ₹59,000

Compliance & Filing Requirements

📌 GST Registration – Mandatory if annual rent exceeds ₹20 lakh
📌 Invoice Generation – Monthly invoices must mention GST details
📌 GST Return Filing – File GSTR-1 & GSTR-3B regularly
📌 Input Tax Credit (ITC) – Claim ITC on maintenance, repairs, and legal expenses
📌 E-Way Bill Rules – If goods are moved due to tenancy changes, compliance applies
📌 Late Fees & Penalties – Non-compliance attracts penalties and interest on outstanding dues

Common Issues & Penalties in GST on Rental Income

🚨 Non-Registration Penalty: If a landlord fails to register for GST despite exceeding the threshold, a penalty of 10% of the tax due (minimum ₹10,000) is levied.
🚨 Late Filing Fees: ₹50 per day (₹25 CGST + ₹25 SGST) for late GST return filing.
🚨 Incorrect GST Calculation: If excess GST is charged and not remitted, a fine of 100% of tax due may be imposed.
🚨 Non-Issuance of GST Invoice: Up to ₹25,000 penalty.

To avoid these penalties, landlords must ensure timely registration, invoicing, and tax payment.

Case Study: How GST Affects a Business Leasing Property

Scenario: A startup leases a commercial office space in Bangalore for ₹1,50,000 per month. The landlord is GST registered and charges 18% GST (₹27,000), making total payable rent ₹1,77,000. The startup can claim Input Tax Credit (ITC) on the GST paid, reducing its overall tax liability.

Lesson: Tenants who are GST-registered businesses can benefit from ITC on rental GST payments.