CBIC Clarifies: No 18% GST on Rent for Unregistered Property Owners.

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Introduction

The Central Board of Indirect Taxes and Customs (CBIC) has announced that property owners who are not registered under GST will no longer have to pay the 18% GST on rent. This move aims to provide relief to small property owners and simplify the tax process for those not registered under GST. This decision will also help in reducing the financial burden on property owners who were previously required to pay the GST on rent.

CBIC clarification about 18% GST exemption on rent for unregistered property owners

Table of Contents

Why Was the 18% GST on Rent Removed?

In a big change for small taxpayers using the composition scheme, the Central Board of Indirect Taxes and Customs (CBIC) has removed the 18% GST on rent for those renting from property owners who aren’t registered under GST. Before this, tenants who were registered under GST had to pay 18% GST through something called the reverse charge mechanism (RCM) when they rented from unregistered property owners. Here’s why the removal of the 18% GST was necessary:

  • Unnecessary Tax Burden: Landlords not registered under GST were often forced to pay taxes they could not offset through input tax credits. This led to financial strain, especially for smaller property owners.
  • Compliance Complexity: GST compliance involves significant documentation and filing, which is often challenging for individuals with limited exposure to tax systems.
  • Promoting Housing and Rental Affordability: By eliminating the GST on rent, the government has indirectly reduced the cost of rentals, making properties more affordable for tenants.
  • Boosting Real Estate Growth: The decision aims to encourage more participation in the rental market by reducing operational hurdles for landlords.

How Does the GST Threshold Affect Property Owners?

The GST registration threshold is a key determinant in understanding the impact of this new rule. Property owners whose total annual income from rent and other sources does not exceed ₹20 lakhs (₹10 lakhs for certain states) are considered exempt from GST registration.

Previously, even these exempt landlords were caught in a legal grey area where the 18% GST on rent was still applicable in certain cases. The CBIC’s clarification eliminates this ambiguity and ensures that only GST-registered individuals are required to pay taxes on rent. Simplifying the tax regime for millions.

Composition Scheme: RCM Exemption for Rent

The new rule caused big money problems for tenants in the composition scheme. Their sales are under Rs 1.50 crore, and they pay a tax rate of 1-6% depending on their type of business. The 18% GST on Reverse Charge Mechanism (RCM) hit small traders, manufacturers, and restaurants hard because they couldn’t get back the GST they paid.

But now, the CBIC has announced that if a dealer in the composition scheme rents from someone who isn’t registered, they won’t have to pay GST on an RCM basis. This is going to be a big relief for small businesses.

Impact on the Real Estate Market

The removal of the 18% GST on rent for unregistered landlords is likely to affect the broader real estate market.

  • Increased Rental Supply: With fewer tax-related hurdles, more property owners may enter the rental market, boosting supply.
  • Investor Confidence: The decision could attract more investments in rental properties, especially in Tier-II and Tier-III cities.
  • Affordability for Tenants: By eliminating GST costs, landlords may pass on the savings to tenants in the form of lower rents.

What Were the Previous GST Rules on Rent?

Before this new policy, GST rules on rent included:

  • An 18% GST on commercial property rentals, even for landlords not registered under GST.
  • Exemptions for residential properties used for personal purposes.
  • Tax liability for landlords is based on the reverse charge mechanism in some cases, leading to confusion and compliance challenges.

CBIC Removes 18% GST on Rent: The Broader Implications

The update was made through notification number 07/2025-Central Tax (Rate) based on recommendations from the 55th GST Council meeting held earlier this month. CBIC’s decision has implications not only for the rental market but also for other sectors. This is coordinated with the government’s wider agenda of simplifying tax compliance and supporting small businesses and individual taxpayers. By addressing the concerns of landlords, the CBIC highlighted the importance of transparent and fair tax systems in building confidence and participation in the economy.

Conclusion

The CBIC’s decision to remove the 18% GST on rent for unregistered property owners is a landmark move with significant implications for landlords, tenants, and the real estate market. By simplifying tax compliance and reducing financial burdens, this policy is expected to boost investor confidence. It improves rental affordability and encourages broader participation in the rental housing sector. For property owners, this is a moment of relief and an opportunity to reevaluate their role in the evolving rental landscape. For more information, visit openplot.

Frequently Asked Questions

Q. What types of properties are exempt from GST under the new rule?

A. Residential and commercial properties rented out by landlords not registered under GST are exempt. It provides their annual income does not exceed the registration threshold.

Q. Does this exemption apply to tenants as well?

A. The exemption directly impacts landlords, but tenants may benefit indirectly through reduced rental costs.

Q. What should landlords do to comply with the new rules?

A. Landlords should review their rental income and ensure they are not inadvertently registered under GST.

Q. Are there any exceptions to the CBIC’s decision?

A. The exemption applies broadly but excludes landlords who are registered under GST or who cross the income threshold.

Q. How does this decision impact GST-registered landlords?

A. GST-registered landlords must continue to comply with existing GST rules, including charging 18% GST on rent.

Q. Will this rule change encourage more people to invest in rental properties?

A. Yes, by reducing compliance burdens, this decision could attract more investors to the rental market.

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