GST on Commercial Rental Income: Key Amendments & RCM from October 10, 2024

In a recent move aimed at enhancing compliance and reducing revenue leakage under the Goods and Services Tax (GST) regime, the Central Board of Indirect Taxes and Customs (CBIC) issued Notification No. 09/2024 – Central Tax (Rate) on October 8, 2024. This notification introduces a significant change by bringing commercial property rentals under the Reverse Charge Mechanism (RCM) when an unregistered person provides the service to a registered person. Effective from October 10, 2024, this amendment stems from the GST Council’s recommendations during its 54th meeting on September 9, 2024.

While the standard 18% GST rate on commercial rental income remains unchanged, the latest amendment expands the applicability of RCM in specific situations, ensuring greater compliance.

Key Changes Under Notification No. 09/2024

Under Section 9(3) of the Central Goods and Services Tax Act, 2017, the Central Government has amended the existing rules via Notification No. 13/2017 – Central Tax (Rate), with a new provision added under Serial No. 5AB in the table of services covered under RCM.

New Entry Under Serial No. 5AB:

  • Category of Supply of Services: Renting of any property other than residential dwelling.
  • Supplier of Service: Any unregistered person.
  • Recipient of Service: Any registered person.

This amendment shifts the liability of paying the GST from the unregistered landlord to the registered tenant under RCM. The registered tenant is now responsible for calculating and paying the applicable 18% GST and can claim Input Tax Credit (ITC) if the property is used for taxable business purposes.

GST on Rental Income: Existing Provisions

Apart from the new RCM rule, existing provisions governing GST on commercial rental income continue to apply in other scenarios. Below are the key cases under the current law:

  1. Both Tenant and Landlord Unregistered
    No GST is applicable if neither party has a GST registration.

  2. Tenant Unregistered, Landlord Registered
    The registered landlord charges 18% GST on rent and remits the tax, but the unregistered tenant cannot claim ITC.

  3. Both Tenant and Landlord Registered
    The registered landlord collects 18% GST from the tenant, and the tenant can claim ITC if the property is used for taxable activities.

  4. Tenant a Composition Dealer, Landlord Registered
    The landlord charges 18% GST, but the composition dealer tenant is not eligible to claim ITC.

  5. Tenant a Composition Dealer, Landlord Unregistered
    With the new RCM rule in place from October 10, 2024, the composition dealer tenant must pay 18% GST under RCM and cannot claim ITC.

  6. Tenant Registered, Landlord Unregistered
    From October 10, 2024, the registered tenant must pay 18% GST under RCM and can claim ITC if eligible.

Summary of GST Applicability on Commercial Rental Income

ScenarioTenant’s GST StatusLandlord’s GST StatusGST ApplicabilityWho Pays GST?ITC Eligibility for Tenant
1. Both UnregisteredNot RegisteredNot RegisteredNo GSTN/AN/A
2. Tenant UnregisteredNot RegisteredRegistered18% FCMLandlordNo
3. Both RegisteredRegisteredRegistered18% FCMLandlordYes
4. Tenant Composition DealerComposition DealerRegistered18% FCMLandlordNo
5. Tenant Composition DealerComposition DealerNot Registered18% RCMTenantNo
6. Tenant RegisteredRegisteredNot Registered18% RCMTenantYes

Impact and Conclusion

The key change introduced by Notification No. 09/2024 is the inclusion of RCM in situations where an unregistered landlord rents commercial property to a registered tenant. From October 10, 2024, the registered tenant must account for the 18% GST under RCM and may claim ITC where applicable. This shift ensures proper GST compliance and collection in cases where landlords are unregistered.

Businesses renting commercial spaces from unregistered landlords should adapt to these new compliance requirements to avoid penalties and ensure that they properly account for the GST liabilities under RCM.

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