Is GST applicable if a registered business rents a residential property for business use?

Yes. If a registered business (or any registered person) rents a residential property, 18% GST is applicable. This GST must be paid by the tenant under the Reverse Charge Mechanism (RCM).

Is GST charged when renting a house to an unregistered individual?

No. Renting a residential dwelling to an unregistered person (like a family or salaried employee for personal housing) is completely exempt from GST.

Can businesses claim Input Tax Credit (ITC) on RCM paid on residential rent?

A registered business can claim ITC on RCM paid for residential rent only if the property is used in the course or furtherance of business (for example, using it as a corporate office or guesthouse, rather than personal director accommodation).

What is the limit for TDS deduction on rent under Section 194-I?

Under Section 194-I, TDS must be deducted if the aggregate rental payment to a landlord exceeds ₹2,400,000 in a financial year. The TDS rate is 10% for renting land, buildings, or furniture, and 2% for machinery.

GST on Rented Property: Residential & Commercial

Renting out real estate is a common source of income for individuals and corporations in India. Under the Goods and Services Tax (GST) regime, renting property is classified as a supply of services. However, the tax treatment depends on the nature of the property (commercial vs. residential) and the registration status of the tenant.

In this comprehensive guide, we detail the GST applicability rules, the Reverse Charge Mechanism (RCM) rules for residential rents, the interplay with Income Tax TDS (Section 194-I), and step-by-step Tally Prime bookkeeping entries to ensure your business remains compliant and audit-ready.

Commercial vs. Residential Rental Applicability

To determine if GST is applicable and who is responsible for paying it, use this statutory framework:

Property Type	Tenant Status	GST Rate & Mechanism	Responsibility
Commercial Property	Any person (Registered or Unregistered)	18% GST (Forward Charge)	Landlord collects and deposits GST (if registered).
Residential Property	Unregistered Person (for residential use)	Exempt from GST	No GST applicable.
Residential Property	Registered Person (Business / LLP / Firm)	18% GST (Reverse Charge)	Tenant must pay GST directly under RCM.

Understanding the Residential Rent RCM Rule

Effective July 18, 2022, the government amended GST rules to bring residential renting under the **Reverse Charge Mechanism (RCM)** when leased to a registered taxpayer. This means that if your business rents a flat to use as a branch office, employee hostel, or director's guesthouse, you are liable to pay **18% GST** directly to the tax department. The landlord is not required to charge GST on their invoice.

To report and claim credit for RCM on rent:

Report the tax liability in **Table 3.1(d)** ("Inward supplies liable to reverse charge") of your monthly Form GSTR-3B.
Pay the GST amount in cash using the Electronic Cash Ledger (ECL).
Claim the Input Tax Credit (ITC) in the same tax period under **Table 4(A)(3)** of GSTR-3B, provided the rental expense is directly related to your business operations.

How to Treat Refundable Security Deposits

When leasing a property, tenants typically deposit a refundable security deposit with the landlord. Under GST rules, a refundable security deposit is not treated as a payment for the lease services, meaning **no GST is applicable** on it at the time of transaction.

However, if the landlord adjusts or forfeits a portion of the security deposit to cover rent dues or damage repair at the end of the lease, that adjusted amount is treated as consideration for services and becomes subject to 18% GST.

GST on Maintenance Charges

In many leases, tenants pay maintenance charges directly to the cooperative housing society or a maintenance agency. These charges are subject to GST at 18% if the housing society's aggregate turnover exceeds ₹20 Lakhs per annum and the individual monthly maintenance contribution per flat exceeds **₹7,500**. If both thresholds are met, the society will issue a tax invoice to the tenant.

Interplay with Income Tax TDS (Section 194-I)

Registered businesses must also navigate income tax TDS requirements. Under **Section 194-I** of the Income Tax Act, if your annual rent payments to a single landlord exceed **₹2,40,000**, you must deduct TDS:

10% TDS on rent of land, building, or furniture.
2% TDS on rent of plant, machinery, or equipment.

TDS is calculated on the basic rental amount, excluding the GST component, provided the GST amount is shown separately in the lease agreement or invoice.

Accounting Entries for Rent RCM in TallyPrime

Recording RCM on rent involves posting a series of ledger entries to record the expense, increase tax liability, and claim the corresponding tax credit:

Step 1: Record the Rent Bill Expense

Debit: Rent Expense A/c (Indirect Expenses)  -- ₹100,000 Credit: Landlord A/c (Sundry Creditors)       -- ₹100,000

Step 2: Increase GST RCM Tax Liability

Under RCM, you must record your liability to pay GST. Post a Journal Voucher (F7) with the **Stat Adjustment** settings:

Debit: Tax on RCM Clearing A/c (Current Asset) -- ₹18,000 Credit: CGST Output (RCM) A/c (Duties & Taxes)   -- ₹9,000 Credit: SGST Output (RCM) A/c (Duties & Taxes)   -- ₹9,000

Step 3: Claim Input Tax Credit (ITC)

Once the tax is deposited with the government, book the credit using a second journal entry:

Debit: CGST Input A/c (Duties & Taxes)           -- ₹9,000 Debit: SGST Input A/c (Duties & Taxes)           -- ₹9,000 Credit: Tax on RCM Clearing A/c (Current Asset) -- ₹18,000

Primary Focus: TrulyInvoice Purchase Automation

Accurately managing GST RCM liabilities on rental payments and monthly vendor bills requires matching invoices with clean purchase ledgers. If tax splits or voucher entries contain typing errors, you risk underpaying RCM liabilities or missing out on eligible input tax credit claims during audits.

To eliminate these errors, use **TrulyInvoice**. TrulyInvoice reads your supplier bill PDFs and scanned invoice images using layout-aware OCR. The platform automatically extracts line items, tax rates, and HSN codes, and syncs formatted F9 purchase vouchers directly into Tally Prime. This eliminates manual data entry mistakes for a flat subscription of **plans starting at ₹399/month**, ensuring your purchase books remain accurate.