1. GST on Rent — The Basics You Need to Know

Under GST law, renting out a property is treated as a supply of service. This means it attracts GST just like any other service — consulting, logistics, or software. The key question isn’t whether GST applies to rent. It almost always does on commercial property. The question is: who pays it, and how?

The GST rate on commercial rent is 18% — split as 9% CGST + 9% SGST for intra-state rentals, or 18% IGST for cross-state rentals (for example, if you’re a Delhi-registered company renting a warehouse in Mumbai).

This isn’t a new concept. GST on commercial rent has been around since July 2017. What has changed over the years — significantly — is who is responsible for paying it in which situations. And the October 2024 amendment closed a major loophole that many businesses had been using (knowingly or not).

Let’s now break down every possible landlord-tenant combination so you know exactly where you stand.

2. All Scenarios: Who Pays GST, and How

The GST treatment of rent depends on three things: (a) whether the landlord is GST-registered, (b) whether the tenant is GST-registered, and (c) whether the property is commercial or residential. Here’s the complete picture:

Quick Visual: The 4 Core Scenarios

3. The October 2024 Amendment — What Actually Changed

Before October 10, 2024: If your landlord was unregistered, no GST was payable on commercial rent at all. Many businesses — knowingly or not — enjoyed this situation. Some companies even structured arrangements so that office or shop space was owned by a family member who wasn’t registered under GST, specifically to avoid the 18% tax.

After October 10, 2024: If you’re a registered taxpayer (under regular scheme) and your landlord is unregistered, you now have to pay 18% GST under RCM. The CBIC also issued a corrigendum clarifying that “any property” in the notification means any immovable property other than a residential dwelling — so commercial property in the widest sense.

In January 2025, a further refinement came through: Composition dealers were carved out from this RCM liability. So if you’ve opted for the composition scheme, you don’t pay GST under RCM for commercial rent from an unregistered landlord. But regular taxpayers — the large majority of registered businesses — are fully covered.

The bottom line for any GST-registered business: check your rent agreement today. If your landlord doesn’t have a GSTIN, you’re now liable for RCM. This isn’t optional, and the department is increasingly looking at this during assessments.

4. If RCM Applies to You: Step-by-Step Compliance

If you’re a regular GST taxpayer renting from an unregistered landlord (for commercial property), here’s exactly what you need to do every month:

Step 1 — Issue a Self-Invoice

Under Rule 46 of the CGST Rules, you (the tenant) must issue a self-invoice since your landlord won’t issue a GST invoice. The self-invoice must mention your GSTIN, the rent amount, 18% GST (CGST + SGST or IGST), and the fact that it’s an RCM transaction.

Also issue a Payment Voucher under Rule 52 — this is the document that evidences the RCM payment.

Step 2 — Pay GST in Cash (No ITC Set-off Here)

Under RCM, the GST must be paid in cash — you cannot use your ITC balance to discharge this liability. This is a common misconception. The RCM amount goes into Table 3.1(d) of GSTR-3B, and the payment must be made in cash.

Step 3 — Report in GSTR-3B

Report the RCM liability in Table 3.1(d) of GSTR-3B — “Inward supplies liable to reverse charge.” Pay the tax. Do NOT report this in GSTR-1 — RCM inward supplies don’t go into GSTR-1.

Step 4 — Claim ITC (If Eligible)

Once you’ve paid the RCM GST, you can claim it back as Input Tax Credit in Table 4 of GSTR-3B in the same or next tax period — provided you are a regular taxpayer and the property is used for taxable supplies. The ITC once credited can be used to offset your output tax liability.

Step 5 — Get Correct GSTIN State Right

This is where cross-state tenants trip up. Under Section 12(3) of the IGST Act, the place of supply for property rental is the location of the property — not your business registration state. So if you’re a Delhi company renting a warehouse in Haryana, you pay CGST + HGST (Haryana SGST), not CGST + DGST. This means you may need GST registration in that state too.

5. Can You Claim ITC on Rent?

Yes — with conditions. The ITC availability on rent depends on how the property is being used, not just whether GST was paid.

• Office rented for business operations: ITC available — fully eligible since it’s used for taxable supplies.
• Godown or warehouse used for storing taxable goods: ITC available.
• Residential flat rented as a guest house for clients or employees: ITC may be blocked under Section 17(5)(g) — this is a grey area and should be discussed with your tax advisor.
• Property used for both taxable and exempt supplies: ITC is eligible only proportionally under Rule 42/43 of the CGST Rules.
• Composition dealer: No ITC available, period.

The legal basis for ITC restriction is Section 17(2) of the CGST Act — which limits ITC to the extent the inputs are used for making taxable outward supplies. If your business is fully taxable, you’re generally fine to claim the full ITC.

6. GST on Residential Property — A Separate Story

This is where a lot of confusion exists, so let’s be very clear.

Personal Residential Use — Exempt

If you rent a flat for someone to actually live in, no GST applies. This exemption under Entry 13 of Notification No. 12/2017 – Central Tax (Rate) covers genuine residential use by individuals. A sole proprietor renting a flat in their personal name for personal stay? Exempt.

Residential Property Rented by a Company for Employees

Here’s the twist: if a company leases a residential flat for its employees, even for them to live in, this is treated as a commercial transaction under GST. The company is getting a service (accommodation for employees) for business purposes. GST at 18% applies under RCM if the landlord is unregistered.

Residential Flat Used as an Office

Many startups and small businesses register their office address at the founder’s home or rent a residential apartment as their office. If the property is a “residential dwelling” by nature but being used commercially, RCM would apply if you’re a registered tenant. The CBIC corrigendum issued on October 22, 2024, clarified that the RCM entry applies to “any immovable property other than residential dwelling” — meaning the nature and use of the property determines tax treatment, not just the construction type.

7. Composition Dealers: What’s Your Liability?

Composition dealers have an interesting position here. The January 2025 amendment specifically carved them out of the October 2024 RCM rule. So here’s the current position:

If you’re a composition dealer, this is genuinely good news — you save on cash flow since you don’t have to pay RCM on commercial rent from an unregistered landlord. However, if your landlord is registered and charges GST, you have to pay it and you can’t claim ITC on it — that’s the ongoing cost of being in the composition scheme.

8. Real-World Case Studies

Watch: GST on Rent Explained (RCM + ITC)

9. Common Mistakes Businesses Make

Mistake 1 — Not Paying RCM Since October 2024

This is the most common one right now. Many businesses simply haven’t updated their processes after the October 10, 2024 change. If you’ve been paying rent to an unregistered landlord without paying GST under RCM since October 2024, you have a pending liability — plus interest at 18% per annum. Voluntarily pay it before a notice arrives.

Mistake 2 — Using ITC Balance to Pay RCM

You cannot use your ITC electronic credit ledger to discharge RCM liability. RCM must be paid in cash via the electronic cash ledger. This catches many businesses off guard — especially at quarter-end when they’re trying to manage cash. The GST portal itself allows this incorrect entry, but it’s non-compliant.

Mistake 3 — Paying IGST on Intra-State Rent

If your business and the property are in the same state, you must pay CGST + SGST — not IGST. Cross-state rentals attract IGST. But remember: the place of supply is the property location, not your business registration state. A Delhi company renting a Mumbai warehouse pays CGST + Maharashtra SGST, and typically needs GST registration in Maharashtra too.

Mistake 4 — Not Maintaining Self-Invoice Records

Self-invoices are legal documents under GST law. Not maintaining them properly — or not maintaining them at all — is a compliance failure that can lead to ITC reversal during a GST audit. Keep your self-invoices for at least 6 years. See our detailed guide on E-Invoicing under GST for related documentation requirements.

Mistake 5 — Assuming “Below Threshold” Landlord Means No GST

Some business owners assume that since their landlord’s total rental income is below ₹20 lakh (the GST registration threshold), no GST applies. This was true before October 2024. It is no longer true for commercial property rentals — the RCM kicks in regardless of the landlord’s income level. The liability has shifted to you as the tenant.

10. Frequently Asked Questions

Official References & Notifications

The rules discussed in this article are based on the following official sources:

• Notification No. 09/2024 – Central Tax (Rate), dated 8 October 2024 — inserts Entry 5AB (RCM on commercial rent by unregistered persons)
• Notification No. 05/2022 – Central Tax (Rate) — original RCM on residential dwelling
• GST Tutorial Portal (tutorial.gst.gov.in) — official learning material
• GST Portal (gst.gov.in) — for filing GSTR-3B and accessing self-invoice help
• CBIC Website (cbic.gov.in) — for official notifications, circulars, and corrigenda

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