Brokerage or commission is often the “entry ticket” into a long-term lease arrangement. In commercial leasing, it is not uncommon for landlords to pay brokerage equal to 3–6 months’ rent upfront, even when the lease itself runs for 9–18 years or longer. The question that inevitably arises is:
Can GST charged on such brokerage be claimed as Input Tax Credit (ITC) against GST payable on commercial rental income?
This blog decodes the issue with statutory provisions, interpretative analysis, judicial guidance, and compliance safeguards.
Taxability of the Underlying Services
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Brokerage / Commission Service
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Classified under SAC 997212 – Real estate services on a fee/commission basis
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Taxable at 18% GST
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Commercial Renting of Property
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Taxable service under GST at 18%
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Landlord must charge GST on monthly rentals
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The nature of both inward (brokerage) and outward (renting) supplies being taxable lays the groundwork for ITC admissibility.
Statutory Framework for ITC
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Section 16(1), CGST Act, 2017
ITC is allowed on goods/services used in the course or furtherance of business.
Brokerage services are clearly incurred in the course of business to secure rental income.
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Section 17(5) – Blocked Credits
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Denies ITC on:
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Works contract/construction of immovable property
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Goods/services capitalised into immovable property
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Brokerage for leasing is neither “works contract” nor construction.
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Risk arises only if brokerage is capitalised in books as part of building cost.
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Timing of ITC
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Commission, though based on 6 months’ rent, is billed and paid once upfront.
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ITC is claimable immediately in the tax period of invoice/payment, subject to Sec. 16(2) conditions.
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The lease duration (e.g., 18 years) has no bearing on ITC.
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Judicial & Interpretative Support
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Safari Retreats Pvt. Ltd. v. Union of India (Orissa HC, 2019)
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Held that ITC should not be denied where the output is a taxable commercial rent.
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Though under appeal, the judgment reflects the spirit of GST — preventing cascading of taxes.
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Saphire Foods India Ltd. v. Union of India (Delhi HC, 2024)
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Clarified that ITC cannot be denied if the input service directly contributes to taxable outward supply, unless specifically restricted under Sec. 17(5).
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AAAR – DLF Commercial Projects Corporation Ltd. (2019)
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Affirmed that facilitation/legal services availed for renting of commercial property are eligible for ITC.
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Together, these precedents strengthen the position that brokerage expenses for leasing commercial properties qualify for ITC.
Ifs, Buts & Edge Cases
| Scenario | ITC Position | Reason |
|---|---|---|
| Lease for commercial use | ✅ Allowed | Renting taxable at 18% |
| Lease for residential dwelling | ❌ Blocked | Residential renting is exempt supply |
| Brokerage expensed in P&L | ✅ Allowed | Directly linked to taxable output |
| Brokerage capitalised in building cost | ⚠️ Disputed | May fall under Sec. 17(5)(d) restriction |
| Broker not GST-registered | ❌ No ITC | Valid GST invoice mandatory |
| Invoice in tenant’s name | ❌ No ITC | Must be in landlord’s GSTIN |
| Lease terminated early | ✅ Still allowed | Service already received upfront |
| Mixed letting (commercial + exempt) | ⚠️ Proportionate | Rule 42/43 reversal required |
| Claim delayed beyond Sec. 16(4) cut-off | ❌ Blocked | Time-barred |
Audit & Compliance Safeguards
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Invoice: Broker’s GST invoice must show landlord’s name and GSTIN.
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Payment Proof: Commission + GST must be paid; visible in GSTR-2B.
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Expense Head: Book as brokerage/lease facilitation expense, not as capital cost.
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Supporting Agreements: Lease deed + brokerage agreement should be preserved.
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Reconciliations: Match GSTR-3B credit with GSTR-2B data to avoid mismatches.
Compliance Checklist
| Requirement | Reference | Proof Needed |
|---|---|---|
| GST invoice in landlord’s name | Sec. 16(2)(a) | Original invoice |
| Broker registered with GST | Sec. 31 | GSTIN verification |
| GST actually paid | Sec. 16(2)(c) | Bank proof + GSTR-2B |
| Property let out commercially | Sec. 16(1) | Lease deed |
| Not capitalised in immovable property | Sec. 17(5)(d) | Books of account |
| Credit claimed within time | Sec. 16(4) | Return filings |
Conclusion
Clear Position: GST on brokerage commission for leasing of commercial property is eligible for ITC and can be adjusted against output GST liability on rent.
Caution: ITC will be denied if —
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The property is let out for residential purposes,
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The brokerage is capitalised into immovable property cost, or
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Invoice/GST compliance conditions are not fulfilled.
With proper classification, documentation, and expense treatment, the ITC claim is legally sound, judicially supported, and defensible in audit.
For landlords with significant rental portfolios, brokerage ITC often runs into lakhs. Structuring it correctly at the outset — through revenue booking, proper invoicing, and documentary trail — ensures smooth credit flow and avoids unnecessary disputes.
