Bottom line: Whether GST applies to rent — and crucially, who pays it — depends on three things: is the property residential or commercial, is the landlord registered under GST, and is the tenant registered. A house let out for someone to live in is exempt. A shop or office is taxable at 18%. And since 10 October 2024, a registered business that rents commercial premises from an unregistered landlord has to pay the GST itself under reverse charge — a change that caught a lot of small business tenants completely off guard, because for the first time the tax liability sits with the tenant even though the landlord charged nothing.
This article untangles the residential-versus-commercial treatment, walks through the reverse charge (RCM) rules with a worked example, and flags the January 2025 relief for composition dealers that many advisers have not updated their clients on. If your own rent arrangement falls in a grey area, our Ask a CA — GST service can confirm your position.
Residential property: exempt, with one important exception
Renting a residential dwelling for use as a residence is exempt from GST. If you let your flat to a family who live in it, no GST arises — the landlord charges none and neither party reports anything. This is the default position and covers the overwhelming majority of house rentals.
The exception arrived on 18 July 2022 (Notification 05/2022-Central Tax (Rate)). From that date, if a residential dwelling is rented to a registered person, the tenant must pay 18% GST under reverse charge. The idea was to plug the gap where companies took residential premises for use as guest houses or offices. It was later clarified (effective 1 January 2023) that where the registered person is a proprietor renting the house in his or her personal capacity for his or her own residence, no GST is payable — a sensible carve-out so that a GST-registered doctor renting a home to live in is not taxed on his own house.
So the residential rule is: exempt for personal residence; but if the tenant is a registered business taking the dwelling for business purposes, 18% RCM applies in the tenant’s hands.
Commercial property: 18%, and who bears it
Renting out commercial property — shops, offices, godowns, factory sheds — is a taxable supply of service (SAC 9972) at 18% GST. The question that decides everything is who is registered:
| Landlord | Tenant | Who pays GST | Mechanism |
|---|---|---|---|
| Registered | Registered or unregistered | Landlord charges 18% in the rent invoice | Forward charge |
| Unregistered | Registered (normal taxpayer) | Tenant pays 18% directly to government | Reverse charge (from 10.10.2024) |
| Unregistered | Unregistered | No GST | — |
Until October 2024, if a landlord was below the GST registration threshold and therefore unregistered, commercial rent simply escaped GST. The government saw this being used to avoid tax and closed it.
The 10 October 2024 change that surprised landlords and tenants
Through Notification 09/2024-Central Tax (Rate), effective 10 October 2024, the renting of any commercial or immovable property (other than a residential dwelling) by an unregistered person to a registered person was brought under reverse charge. In plain terms: if you run a GST-registered business and you rent your shop or office from a landlord who is not registered under GST, you — the tenant — must now pay 18% GST on the rent directly to the government under RCM.
This surprised people for two reasons. First, the landlord’s invoice shows no GST, so tenants who were not watching the notifications simply paid the rent and moved on — and only discovered the liability during a reconciliation or audit. Second, the tenant has to self-assess, deposit the tax in cash (RCM cannot be paid using ITC), and then claim it back as input tax credit. The good news is that for a normal registered tenant using the premises for business, that ITC is available, so the net cost is usually nil — but the compliance step is mandatory and non-negotiable, and skipping it creates an interest and penalty exposure.
January 2025 relief for composition dealers
The October 2024 change created a genuine hardship for one group: composition taxpayers. A composition dealer cannot claim input tax credit, so paying 18% RCM on rent would be a pure, unrecoverable cost on top of their composition tax. Recognising this, the government issued Notification 07/2025-Central Tax (Rate) on 16 January 2025, which excludes composition taxpayers from RCM on renting of commercial/immovable property. The relief was given retrospectively on an “as is where is” basis from 10 October 2024, so composition dealers who had already started paying RCM in that window got protection. If you are a composition dealer renting commercial premises from an unregistered landlord, you do not pay RCM on that rent.
Worked example: a registered retailer renting a shop
Take Meera, who runs a GST-registered garment shop (a normal, non-composition taxpayer). She rents her shop for Rs. 60,000 per month from a landlord who owns just this one property and is not registered under GST.
| Item | Amount (per month) |
|---|---|
| Rent paid to landlord | Rs. 60,000 |
| GST @ 18% payable by Meera under RCM (in cash) | Rs. 10,800 |
| ITC Meera can claim on that RCM (business use) | Rs. 10,800 |
| Net GST cost to Meera | Nil (but Rs. 10,800 must first be paid in cash) |
Meera must raise a self-invoice, pay Rs. 10,800 through her electronic cash ledger, report it as an RCM liability in her GSTR-3B, and then take the same amount as ITC. Over a year that is Rs. 1,29,600 cycling through her returns. If she ignores it, she faces interest at 18% per annum on the unpaid RCM plus a possible penalty, even though her eventual net liability is zero. You can quickly compute the tax on any rent figure with our GST Calculator, and if you are also formalising the tenancy, our Rent Agreement Stamp Duty Calculator helps with the state stamp duty on the lease deed.
What about residential-cum-commercial and mixed use?
The exemption hinges on the property being a residential dwelling used as a residence. If a residential-looking property is actually let out for commercial use — say a house converted into a coaching centre or a serviced office — it is treated as commercial and taxed accordingly. The tax follows the real use, not merely the description in the municipal record. Where use is genuinely mixed, the position needs to be examined case by case, and it is worth documenting the intended use clearly in the rent agreement to avoid a later dispute.
Key takeaways
- Residential let for living = exempt. No GST.
- Residential let to a registered person for business = 18% RCM in the tenant’s hands (since 18 July 2022), except where a proprietor rents it for his own residence in personal capacity.
- Commercial rent, registered landlord = 18% forward charge; the landlord charges it in the rent invoice.
- Commercial rent, unregistered landlord to registered tenant = 18% RCM paid by the tenant (since 10 October 2024) — the change that surprised many.
- Composition dealers are exempt from that commercial RCM (Notification 07/2025, from 16 January 2025, effective back to 10.10.2024).
- RCM must be paid in cash, then claimed as ITC by a normal registered tenant — usually net-nil, but non-payment triggers 18% interest and penalty.
Frequently Asked Questions
I am GST-registered and rent my office from a landlord who is not registered. Do I really have to pay GST he never charged me?
Yes. Since 10 October 2024, the reverse charge shifts the 18% GST on that commercial rent to you as the registered tenant. The landlord’s silence on GST does not remove your liability — you must self-invoice, pay the tax in cash, report it in GSTR-3B, and then claim it back as input tax credit (assuming business use). Ignoring it invites interest and penalty.
Is the GST I pay under RCM on rent recoverable?
For a normal registered taxpayer using the premises for taxable business, yes — the RCM you pay is available as input tax credit, so the net cost is usually nil. The exception is a composition dealer, who cannot take ITC; that is precisely why composition dealers were later exempted from RCM on commercial rent altogether.
My company rents a flat as a guest house for visiting staff. Is that exempt?
No. Although it is a residential dwelling, it is being taken by a registered person for business use, so the 18% reverse charge applies in your company’s hands under the 18 July 2022 rule. The exemption is only for a residential dwelling used as an actual residence, and specifically where a proprietor rents it in a personal capacity for his own home.
If both my landlord and I are unregistered, is any GST due on commercial rent?
No. Reverse charge on commercial rent from an unregistered landlord is triggered only when the tenant is a registered person. If neither party is registered, there is no GST on the rent. But note that if your turnover grows and you cross the registration threshold, the RCM obligation will start from the date you become registered.
Can I pay the RCM on rent using my available input tax credit balance?
No. GST payable under reverse charge must be discharged in cash through the electronic cash ledger — you cannot set it off against your ITC balance. Once paid, you can then take credit of that same amount (subject to the usual conditions), but the initial payment must be in cash. This is a common and costly mistake in GSTR-3B filing.