The Evolving Landscape of GST on Renting Residential Dwellings
From a simple use-based exemption to a nuanced rule-set — a comprehensive analysis of every legislative change, its implications for landlords, tenants, businesses, and hostel operators, and what the law says today.
The Goods and Services Tax (GST) framework in India provides for exemptions on certain supplies of goods and services in the public interest. One of the most pertinent exemptions — affecting a vast number of individuals and businesses — is related to the renting of residential properties. Initially conceived as a straightforward exemption to make housing affordable, its application and interpretation have undergone significant legislative changes over the years.
This article traces the full evolution of this exemption — from its original form to the latest amendments — and provides a detailed analysis of its implications for landlords, tenants, businesses, and accommodation operators.
The Legislative Journey: Four Phases of Change
Understanding where the law stands today requires tracing its evolution through four distinct phases:
Phase 1: The Original Exemption (Prior to 18th July 2022)
Notif. 12/2017-CT(R) · Entry 12From GST's inception on 1st July 2017 until 17th July 2022, the exemption under Entry No. 12 operated on two core conditions:
- The property being rented had to be a residential dwelling
- The ultimate purpose of renting had to be for use as residence
During this period, the registration status of the landlord or tenant was immaterial. Even commercial entities renting residential properties for their employees' accommodation could avail of the exemption, provided the end-use was residential. The framework was simple: residential property + residential use = exempt.
Phase 2: The Paradigm Shift of 18th July 2022
Amendment to Entry 12 + Entry 5AA · RCM Notif. 13/2017-CT(R)A pivotal change occurred with effect from 18th July 2022, which fundamentally altered the exemption by introducing a recipient-based condition. Entry 12 was amended to read:
"Services by way of renting of residential dwelling for use as a residence, except where the residential dwelling is rented to a registered person."
This amendment had two significant consequences:
- Withdrawal of exemption for registered tenants: The exemption is no longer available if the tenant holds a GST registration — regardless of whether the property is used for residence or commercial purposes.
- Introduction of RCM via Entry 5AA: Concurrently, Entry 5AA was inserted into the RCM notification. For services by way of renting a residential dwelling to a registered person, the liability to pay GST shifts to the recipient (tenant). The registered tenant pays GST directly to the government on rent paid to the landlord.
Impact on businesses: Companies, LLPs, and other registered entities renting residential properties for employees, directors, or as guesthouses became liable to pay GST under RCM on such rentals — even where the end-use remained purely residential.
Phase 3: Relief for Proprietors (Effective 1st January 2023)
The July 2022 amendment created an immediate ambiguity for proprietors of proprietorship concerns. A proprietor holds GST registration in their business capacity — but should their personal house rental attract RCM simply because of that business registration?
To resolve this, an explanation was inserted with effect from 1st January 2023, clarifying that the exemption remains available where both of the following conditions are cumulatively satisfied:
- The registered person is a proprietor of a proprietorship concern and rents the residential dwelling in their personal capacity for use as their own residence
- The renting is on their own personal account and not on account of the proprietorship concern
This provided much-needed relief to individual business owners, ensuring their personal rental transactions were not inadvertently pulled into the tax net due to their business's GST registration. Both conditions must be satisfied simultaneously — a proprietor renting a flat as a guesthouse for business clients would not qualify.
Phase 4: Hostels and PGs Explicitly Excluded (15th July 2024)
Notif. 04/2024-CT(R)While courts had previously taken the view that long-term hostel accommodation could qualify as a 'residential dwelling' for residential use, Notification No. 04/2024-CT(R) decisively settled this issue from a legislative standpoint. Two significant changes were made to Entry 12:
Change 1 — Insertion of Explanation 2
A new Explanation 2 explicitly states that the exemption for 'renting of residential dwelling' does not cover:
- Accommodation services for students in student residences
- Accommodation services provided by Hostels, Camps, Paying Guest (PG) accommodations, and the like
Change 2 — Removal of Heading 9963
The scope of Entry 12 was amended to remove Heading 9963 (Accommodation, food and beverage services), retaining only Heading 9972 (Real estate services). This ensures accommodation-service providers cannot route themselves under Entry 12.
A new entry (Sl. No. 12A) has been introduced, exempting long-term stays of 90 days or more in hostels, PGs, and similar accommodations where monthly charges do not exceed ₹20,000 per person. This provides targeted relief for affordable student and migrant worker accommodation, while ensuring premium co-living and hostel services remain taxable.
Current Law — GST Implications at a Glance
The current GST position on renting a residential dwelling, reflecting all post-amendment rules, is summarised below:
| Tenant's Registration Status | End Use of Property | GST Taxability | Who Pays GST |
|---|---|---|---|
| Unregistered person | For residence | Exempt | Not applicable |
| Unregistered person | For commercial purposes | Taxable | Supplier (Landlord) — Forward Charge |
| Registered person | For residence or commercial use | Taxable | Recipient (Tenant) — RCM |
| Registered person (Proprietor) | For own personal residence (personal capacity) | Exempt | Not applicable |
Analysis of Practical Scenarios
The evolved rules play out differently depending on who the tenant is and how the property is used. Three common scenarios illustrate the practical implications:
Key Compliance Takeaways
Taxpayers — including landlords, tenants, and operators of accommodation services — must now carefully evaluate each rental transaction against these evolved parameters:
- Registered tenants must check whether RCM applies and report it correctly in their GST returns (GSTR-3B), regardless of whether the landlord is registered
- Proprietors renting in personal capacity should maintain documentation evidencing that the rental is not on account of the business
- Co-living and hostel operators must assess whether stays qualify for the new Sl. No. 12A threshold (90+ days, ≤ ₹20,000/month/person); stays not meeting both conditions are fully taxable
- Businesses paying RCM on employee accommodation rentals should evaluate ITC availability — ITC is blocked if the accommodation is for non-business use or where output is exempt
- Multi-state registered entities should verify the GST registration status at the location of the rented property before concluding on RCM liability
Frequently Asked Questions
14 QuestionsCommon questions on GST applicability to residential dwelling rentals — answered by our team at R K N & Associates.
No — you are not required to register for GST on account of this rental. When a residential dwelling is rented to a registered person (company, LLP, or any registered entity), the GST liability shifts entirely to the tenant under the Reverse Charge Mechanism (RCM). The landlord is not the supplier liable to pay GST; the tenant is. Your rental income remains outside the GST compliance net as an unregistered landlord, as long as you are not otherwise liable to register on account of other taxable supplies crossing the threshold (₹20 lakh for services or ₹40 lakh for goods in most states).
No — this transaction is exempt from GST. The exemption under Entry No. 12 applies where the tenant is an unregistered person and the property is rented for residential use. As a registered landlord, you are not required to charge or pay GST on this rental. You should not issue a tax invoice for this supply but may issue a bill of supply if required. There is also no RCM — RCM under Entry 5AA applies only when the tenant is a registered person, not when the landlord is registered and the tenant is unregistered.
If the tenant is unregistered and the property is primarily a residential dwelling being rented primarily for residential purposes, the exemption is generally available. The law does not mandate a 100% pure-residential use — the property itself must be a residential dwelling and the rental must be for use as a residence. Incidental or minor use as a home office by an unregistered individual has not been treated as converting the supply into a fully taxable transaction.
However, if the unregistered individual is using a significant portion of the property exclusively for commercial purposes — for example, using three rooms of a five-room house as a commercial establishment — the facts and circumstances would need to be reviewed carefully. When in doubt, consult a GST professional.
Yes — since your company is a registered person, the exemption under Entry No. 12 does not apply. Your company is liable to pay GST at 18% under RCM on the rent paid to the landlord, regardless of whether the landlord is registered or unregistered, and regardless of the fact that the property will be used for an employee's personal residence.
Your company must:
- Self-invoice the RCM liability
- Report and pay the GST in GSTR-3B under the RCM section
- Evaluate ITC availability — ITC is generally blocked on accommodation provided to employees, as it falls under blocked credits under Section 17(5)(b) of the CGST Act, unless the employer is in the business of providing accommodation services
No — provided both conditions of the 1st January 2023 clarification are satisfied:
- You are renting the dwelling in your personal capacity for use as your own residence — not as a guesthouse, business accommodation, or for any business purpose
- The rental agreement and payments are on your own personal account, not on account of the proprietorship concern
Since you are a registered person, the exemption does not apply to you at all — irrespective of end use. Your RCM liability is triggered purely by your registration status as the tenant.
For the mixed use aspect: the supply is treated as a mixed supply, which attracts the tax treatment of the supply with the highest tax rate. The entire rent is subject to GST at 18% under RCM. You must self-invoice and pay the GST in GSTR-3B. ITC on this expense may also be restricted — the portion attributable to residential use attracts blocked ITC under Section 17(5)(b), while the portion attributable to professional use may be admissible. An apportionment calculation is required.
The applicable GST rate under RCM for renting of residential dwelling to a registered person is 18% (9% CGST + 9% SGST), which is the standard rate for real estate services under Heading 9972. The tax is payable by the registered recipient (tenant) directly to the government. The landlord receives only the base rent — no GST component needs to be collected from or paid to the landlord by the tenant.
It depends on the purpose for which the property is rented:
- Employee accommodation: ITC is blocked under Section 17(5)(b) of the CGST Act. Services of renting a motor vehicle, vessel, aircraft, or accommodation for personal use of employees generally do not qualify for ITC, unless the employer is in the business of providing such services.
- Director's accommodation: Similarly blocked in most cases.
- Guest house / transit accommodation for business visitors: ITC may be available if it can be established that the accommodation is used for business purposes and not for personal benefit of employees.
- Co-living companies: ITC is not available if the output supply (letting to students/residents) is exempt. Where the output is taxable, ITC is available subject to other conditions.
A registered tenant liable to pay GST under RCM must:
- Issue a self-invoice: Since the landlord is unregistered (in most cases), the registered tenant must issue a self-invoice under Rule 36(1)(b) of the CGST Rules for the supply received under RCM
- Pay GST in cash: RCM liability must be discharged only through the Electronic Cash Ledger — it cannot be offset using ITC available in the Electronic Credit Ledger
- Report in GSTR-3B: Declare the RCM liability in Table 3.1(d) of GSTR-3B (inward supplies liable to reverse charge)
- Report in GSTR-2B / GSTR-2A: Self-invoiced RCM transactions should be reflected appropriately
- ITC claim (if available): After paying RCM, eligible ITC (if any) may be claimed in Table 4 of GSTR-3B in the same or subsequent return period
Post the amendment effective 15th July 2024, PG accommodations are explicitly excluded from the Entry No. 12 exemption. Your services are therefore taxable — unless they qualify for the new threshold-based exemption at Sl. No. 12A.
To qualify for Sl. No. 12A, both conditions must be met:
- The stay must be for a continuous period of 90 days or more
- The monthly charges must not exceed ₹20,000 per person
No — this argument is no longer tenable after Notification No. 04/2024-CT(R) effective 15th July 2024. Prior to this amendment, some hostels successfully argued before appellate authorities that their long-term accommodation qualified as "renting of residential dwelling for use as residence." The July 2024 amendment introduced Explanation 2 to Entry 12, which explicitly and unambiguously excludes:
- Accommodation services for students in student residences
- Accommodation services provided by Hostels, Camps, PG accommodations, and the like
Yes — this transaction qualifies for the Sl. No. 12A threshold exemption. Both conditions are satisfied:
- Stay duration: 6 months = approximately 180 days, which exceeds the 90-day minimum
- Monthly charges: ₹18,000 per person, which is below the ₹20,000 cap
No — RCM does not apply in this case. The RCM liability under Entry 5AA of Notification No. 13/2017-CT(R) is tied to the tenant being a "registered person" in the context of the specific supply's location. Since the tenant does not hold a GST registration in Delhi (the state where the property is located), the condition of "registered person" is not satisfied for this supply.
The supply is therefore treated as renting to an unregistered person. If the property is being used for residential purposes, the transaction is exempt under Entry No. 12. This position was clarified in the context of GST place-of-supply rules and registration requirements. However, if the tenant subsequently obtains registration in Delhi (for any reason), the position changes.
For businesses renting residential flats for employees (a common arrangement for senior hires or relocated staff), the GST compliance checklist is:
- Confirm registration status: Is the rental agreement in the company's name? If yes, RCM applies at 18%
- Issue self-invoice monthly: On or before the due date for each rental payment, issue a self-invoice capturing the RCM liability
- Pay RCM in cash via ECL: Transfer funds to the Electronic Cash Ledger and pay the RCM amount — it cannot be settled using ITC
- Report in GSTR-3B: Table 3.1(d) — inward supplies liable to reverse charge
- Assess ITC blockage: ITC on employee accommodation is generally blocked under Section 17(5)(b). Consult your GST advisor on specific facts
- Perquisite valuation for direct tax: If the company provides accommodation to an employee, the perquisite value must also be computed and added to the employee's salary for TDS purposes under the Income Tax Act
- Verify state registration: Ensure your GST registration covers the state where the property is located
Have Questions? We're Here to Help.
Our team at R K N & Associates specialises in GST advisory, compliance, and litigation support. Reach out to us for a personalised review of your rental transactions and RCM obligations.