GST on Commercial Rent – Rates, Rules & ITC Explained

Let’s say Mr. Kumar, GST-registered landlord, rents out his commercial complex to an office called FIN Corporations Ltd. As the complex is situated in the central part of the city of Mumbai, the rent for each month is ₹ 76,700. However, it also includes the GST amount, which Mr. Kumar should collect.

Do you know how much GST is for that?

It is ₹ 11,700! Yes, you see that’s the amount which Mr. Kumar should collect, and the Input Tax Claim (ITC) can be claimed by the Fin Corporations Ltd later on.  This blog explains to you about the GST on Commercial Rent and its working principles in the realm of GST.

What is GST on Commercial Rent?

A commercial rent is a sum of rent money which the tenant of a particular commercial building or premise needs to pay to its owner regularly at the beginning or end of the month. This rent amount is collected for using the commercial space, which encompasses all the basic requirements for a commercial building.

Example: Mr. Kumar has rented out a commercial complex to ABC Jewellery, for which he receives the rent of ₹ 47,200 (₹ 40,000 + ₹ 7,200 GST of 18%)

The implications of GST on commercial rent are essential, as those details need to be furnished in the GST forum.

List of Commercial Rent Categories

The following table enumerates the recognised places as suitable for commercial rents, along with the 18% GST.

• Retail Shops
• Office Spaces
• Factories
• Warehouses
• Land leased for commercial purposes

Example: If a building is rented out for an office space, such as a private bank, then the landlord is supposed to collect the rent, which is inclusive of GST.

Read More - GST On Land Purchases

Mr. Kumar collects rent for a commercial office space for ₹ 35,400 (₹ 30,000 + ₹ 5,400 of 18% GST)

Income Threshold for GST in Commercial Rent

The government of India has fixed an income threshold to collect the commercial rent with the GST. However, the income threshold differs based on two different categories, designated by the GST Council.

 Example:

If Mr. Advani rents his commercial space to a private bank for ₹ 1,88,800 for a month, then this is how the calculations work:

  Scenarios in GST on Commercial Rent

There are four scenarios in GST on commercial rent.

Scenario 1: The Landlord is not GST registered, but the tenant is GST registered

Example:

Let’s consider Suresh’s commercial rent income. He rents his building for commercial space to a private IT company for ₹ 45,000. In this case, this is how the calculations work:  

 In this scenario, Suresh gets paid the rent of ₹ 40,000. But the GST registered tenant pays their GST for rent to the government directly, which is ₹ 7,200. The calculation for Input Tax Claim (ITC) works for the tenant through the Reverse Charge Mechanism (RCM). Under this mechanism, the tenant can claim their ITC via the GST portal.

Scenario 2: Both the landlord and the tenant are registered

This is the common scenario that is prevalent in our country. Here, usually, the annual income threshold for the landlord is higher than ₹ 20,00,000.

Example:

Let’s say AAA Properties Ltd rents their building for commercial space to a monthly rent of ₹ 1,94,700, inclusive of 18 % GST. Then this is how the calculations work:

 As the total rent income exceeds ₹ 20,00,000 per annum, the owner of the building must issue a GST-compliant tax Invoice to the tenant. Here, both the owner and the tenant are eligible for the ITC in the GST filing.

Scenario 3: Neither of them is GST registered  

When both parties’ income does not exceed the threshold of ₹ 20,00,000 per annum, neither of them needs to be GST-registered for their business.

Example:

Let’s say a local retailer pays ₹ 25,000 every month to Mr. Ram Kumar, where neither of them has an income of below ₹ 20,00,000 lakhs, and neither of them do not requires to register in GST. Then this is how the calculations work:

 In this scenario, the tenant needs to pay ₹ 25,000 every month to the owner. There is no GST compliance, as their annual income is below the threshold.

Also Read - GSTR-3B vs GSTR-1 Compared

Scenario 4: The Landlord is registered, but the tenant is not registered

This is a less popular scenario. The only difference that makes here is that the tenant cannot claim the Input Tax Claim (ITC), as they are not registered with GST.

Example:

Premium Properties Ltd rents its building for commercial purposes to Mr. Vijay for a rent of ₹ 88,500. Here, the actual rent is ₹ 75,000, whereas the 18% GST for the rent amount is ₹ 13,500.

Though Mr. Vijay has not registered his business with GST, he still needs to pay the GST amount of 18% for the rent of ₹ 75,000, totalling ₹ 88,500 per month. The Premium Properties Ltd can deposit the GST amount to the government later on in filing GST returns.

Conclusion

Today, no one can do money laundering through renting for commercial businesses. Both the tenant and landlord of various income criteria need to furnish their income to avail of ITC in filing GST returns. The main objective of introducing this GST compliance is to track the overall spending on all kinds of goods and services which are taxable.

FAQs

1. What is the income criterion for the normal category?

The income criteria is above ₹ 20,00,000.

2. What is the income criterion for the special category?

The income criterion is below ₹ 10,00,000.

3. For which states, the special category applicable?

The states of Manipur, Meghalaya, Tripura, Assam, Arunachal Pradesh, Nagaland, Mizoram, Pudhucherry, Sikkim, and Uttarakhand are applicable for the special category.

4. What happens when both the tenants and landlords have an income of below ₹ 20,00,000?

Neither of them is required to comply with GST filings.

5. Can I claim my ITC through the online portal of GST?

Yes, you can claim it from the online GST portal.
 

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