RCM on Renting of Commercial Properties
Table of Contents
RCM on Renting of Commercial Properties : Important GST Update
- A corrigendum to Central Board of Indirect Taxes and Customs Notification No. 09/2024-CTR has been released, bringing important clarity to the application of Reverse Charge Mechanism on the renting of properties. CBIC Issued Corrigendum to Provide RCM is Applicable Only on Renting of Commercial “Immovable” Property.
- Renting of non-residential (commercial/industrial) properties. The tenant (recipient of the service) is responsible for paying GST (both CGST and SGST) under RCM. This rule comes into effect on 10th October 2024.
- The recent amendment by the CBIC mandates that tenants are required to pay GST under RCM on rent payments to unregistered landlords. CBIC notifies the renting of commercial property by an unregistered person to a registered person under Reverse Charge Mechanism to prevent revenue leakage. This applies specifically to the renting of non-residential (commercial or industrial) properties. CBIC clarify term “Any Property” should now be interpreted as “Immovable Property.”
Central Board of Indirect Taxes and Customs Clarification:
Earlier, there was confusion regarding whether RCM provisions applied to movable assets such as plant and machinery. The Central Board of Indirect Taxes and Customs has clarified that the rule applies exclusively to immovable properties, including the renting of land and buildings. This update ensures that only immovable property rentals fall under the scope of the notification for RCM, removing any ambiguity about its application to movable assets.
GST Taxability of Leasing of Residential Property under GST
| Particulars | To Unregistered Persons | To Registered Persons |
|---|---|---|
| Taxability | Exempt | – Exempt up to 17.07.2022 – Yes, @ 18% under Reverse Charge Mechanism (RCM) w.e.f. 18.07.2022 |
| Taxability w.e.f. 01.01.2023 | – | Yes, @ 18% under Reverse Charge Mechanism |
| Input Tax Credit (ITC) | Not Applicable (NA) | ITC can be claimed by the recipient |
| Authority / Notification | Notification No. 12/2017-CT (Rate) dated 28.06.2017 | – Notification No. 12/2017-CT (Rate) dated 28.06.2017 – Notification No. 4/2022-CT (Rate) & Notification No. 5/2022-CT (Rate) dated 13.07.2022 – Notification No. 15/2022-CT (Rate) dated 30.12.2022 |
Conditions for Registered GST Persons:
- The recipient must be registered.
- The supplier must be unregistered.
- No GST applies if the residential accommodation is rented to a proprietor in an individual capacity for residential use.
- Tax @ 18% applies under the RCM if the residential property is used for a proprietary concern.
GST Taxability of Leasing of Commercial Property under GST
| Owner | Tenant | Taxability | Remarks |
|---|---|---|---|
| Unregistered | Unregistered | Not Taxable | – |
| Registered | Unregistered | Taxable | Tax to be paid under Forward Charge Mechanism |
| Registered | Registered | Taxable | Tax to be paid under Forward Charge Mechanism |
| Unregistered | Registered | Taxable | Tax to be paid under Reverse Charge Mechanism |
Previously, there was ambiguity about whether the provision would apply to movable assets like plant and machinery. However, the Central Board of Indirect Taxes and Customs has clarified that this rule pertains exclusively to immovable properties, such as land and building rentals.
Tenants paying rent to unregistered landlords need to ensure they are registered for GST to comply with the RCM provisions. The tenant is responsible for calculating and paying the applicable GST (CGST + SGST) on rent every month.
**********************************************************
If this article has helped you in any way, i would appreciate if you could share/like it or leave a comment. Thank you for visiting my blog.
Legal Disclaimer:
The information / articles & any relies to the comments on this blog are provided purely for informational and educational purposes only & are purely based on my understanding / knowledge. They do noy constitute legal advice or legal opinions. The information / articles and any replies to the comments are intended but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as a legal advice or an indication of future results. Therefore, i can not take any responsibility for the results or consequences of any attempt to use or adopt any of the information presented on this blog. You are advised not to act or rely on any information / articles contained without first seeking the advice of a practicing professional.