When it comes to running a business, one of the biggest expenses for most companies is the rent they pay for their commercial property. However, did you know that the rent paid on commercial property in India is subject to Goods and Services Tax (GST)?
That's right - GST on rent paid on commercial property is an important consideration to make. Under the GST regime, commercial property rent is considered a taxable supply of services. As a result, both the landlord and the tenant need to be aware of the GST implications on commercial property rent to avoid any penalties or legal issues.
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So, let's dive into this topic and explore the various aspects of GST on commercial property rent in India, including the applicable rates, threshold limits, input tax credit, and more.
Implications of GST on Commercial Property Rent
Understanding the implications of GST on commercial property rent helps you comply with the GST laws and regulations. This can help you avoid any penalties or legal issues.
As a landlord, you can claim an input tax credit (ITC) on the GST paid on goods and services used for the maintenance and upkeep of your commercial property. This can help you reduce your overall tax liability.
As a tenant, you need to factor in the GST on commercial property rent while budgeting for your expenses. Similarly, as a landlord, you need to charge and collect the GST from the tenant. Failing to do so can result in financial losses.
Useful read: GST on Sale of Commercial Property
Applicability of GST on Commercial Property Rent
Renting is considered a taxable supply of income. Whether the property is an office space, a retail store, a warehouse, or any other business establishment, the landlords are bound to pay GST on rental income. But, if the rental income is below the threshold limit of 20 lakhs a year, then the landlords need not pay GST.
Simply put, if the landlord earns less than 20 lakhs per year through rental income, they aren’t liable to pay GST. But if the annual rental income is above 20 lakhs, a standard 18% tax is to be paid on rental income from commercial property.
GST Rates On Commercial Property Rent
The GST rate for commercial rental property is 18% of the rent paid. Whether the landlord is registered for GST or not, if the tenant is registered, then they have to pay the GST when the place is rented for business use.
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Calculation of GST on Commercial Property Rent
So, how do you calculate GST on rental income from commercial property in India?
Let's assume that the monthly rent for a commercial property is ₹2,50,000. The GST rate is currently 18% and the threshold for GST registration is ₹20 lakhs in a financial year.
Since the annual rent exceeds the threshold limit of ₹20 lakhs, the landlord is required to register for GST and charge GST on the monthly rent.
To calculate the GST amount, we need to multiply the rent by the GST rate as follows:
GST Amount = Rent x GST Rate = ₹2,50,000 x 18% = ₹45,000
Therefore, the GST amount payable on the monthly rent of the commercial property is ₹45,000.
The total amount payable by the tenant to the landlord for the monthly rent, including GST, is calculated as follows:
Total Rent = Rent + GST Amount = ₹2,50,000 + ₹45,000 = ₹2,95,000
GST is calculated by 18% of the amount paid as rent.
GST On Lease Transaction
The GST on lease transactions purely depends on the purpose of the property going to be used. If it is a residential property then it's calculated as residential property GST rate. If the leased property is used for any business or commercial purposes, then the GST is calculated on 18% of the rent. This is exactly the GST on commercial property rent rate which is calculated with the rent paid.
GST On Other Rental Income
Other than rental income, there are few income possibilities available with commercial and residential properties such as parking fees, maintenance charges, or any other common area charges. The GST for these is calculated as 18% if the total turnover of the year exceeds Rs. 20 lakhs.
Useful read: How to get better rental yield in India?
Input Tax Credit (ITC) on Commercial Property Rent
The amount paid for GST by an individual can be used for his other taxable income. To put it simply, ITC on GST can be claimed easily if it meets the requirements.
Eligibility to claim ITC on commercial property rent, the tenant must be a registered GST taxpayer and use the rented property for business purposes.
Conditions for ITC: To claim ITC, certain conditions must be met:
The tenant should have valid tax invoices or documents from the landlord.
The GST paid on the rent must be mentioned separately in the invoice.
The rent should be used for business purposes, allowing for the input tax to be creditable.
Restrictions on ITC: There are certain restrictions on claiming ITC on commercial property rent:
ITC cannot be claimed for rent paid for a property used for personal purposes or non-business activities.
If the tenant opts for the composition scheme or the property is exempt from GST, ITC cannot be claimed.
Proper Documentation is important to maintain proper records and documentation of rent invoices and related documents to support the claim of ITC.
GST Compliance for Commercial Property Rent
In India, landlords receiving commercial property rent are required to fulfill certain GST registration requirements. Let's see them below.
- Threshold Limit:
If the aggregate turnover of the landlord's rental income from commercial properties exceeds the prescribed threshold limit, they must register for GST the threshold limit for GST registration is ₹20 lakh (₹10 lakh for special category states).
- Interstate Supply:
If the landlord rents out commercial properties across different states, they are required to register for GST, regardless of their turnover.
Voluntary Registration:
Even if the landlord's rental income does not exceed the threshold limit, they can opt for voluntary GST registration. This allows them to claim Input Tax Credit (ITC) on their expenses related to the property.
4. GSTIN and Tax Invoicing:
Once registered, the landlord will receive a unique Goods and Services Tax Identification Number (GSTIN). They must issue tax invoices to tenants, mentioning the GST charged separately on the rent amount.
5. GST Returns:
Registered landlords are obligated to file regular GST returns, such as GSTR-1, GSTR-3B, and annual returns (GSTR-9). These returns reflect the details of rental income, GST collected, and ITC availed.
- Payment of GST:
Landlords must collect the applicable GST from the tenants and remit it to the government within the prescribed time frame. The GST rates vary depending on the nature of the property and the terms of the lease agreement.
How To File Your GST For Commercial Property Rent In India?
By following the simple steps you can file your GST return for commercial property rent.
First login to the website - https://services.gst.gov.in/services/login
Under the Services tab on the GST portal, click on the "Returns" tab, and select the "Return Filing" option.
For commercial property rent, you need to file GSTR-1 and GSTR-3B returns.
GSTR-1 is a monthly return that includes details of all outward supplies, including commercial property rent, made by the landlord during the month. You need to file GSTR-1 by the 11th of the following month.
GSTR-3B is a monthly summary return that includes details of all taxable supplies, input tax credit, and tax payable by the landlord for the month. You need to file GSTR-3B by the 20th of the following month.
- Select your options as quarterly or monthly filing.
- Fill in all your current taxes on various sectors.
- After filing the return, you may need to pay the GST liability using the "Payment" option on the GST portal.
- Select the "Create Challan" option, enter the amount to be paid, and choose the mode of payment. After making the payment, download the payment receipt.
- Then finally acknowledge your return through OTP or DSC filing.
Conclusion
GST on commercial property rent in India is applicable to the rental income generated from leasing commercial properties. Landlords are required to register for GST if their rental income exceeds the threshold limit which is Rs. 20 lakhs/annum, or if the properties are rented out across different states. They must collect GST from tenants, issue tax invoices separately mentioning the rent amount and GST charged, and file regular GST returns. Input Tax Credit (ITC) can be claimed on expenses related to the property. It is important to comply with GST regulations, accurately calculate and remit GST, and maintain proper records for smooth and compliant operations.
The importance of expert guidance in GST compliance on real estate should always be considered. They will guide you through the maze of tax planning ITC and other regular challenges as they possess the skills and knowledge with experience on hand.
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