Under the GST framework the idea of the Reverse Charge Mechanism (RCM) has been expanded to include commercial property rentals by unregistered individuals. The purpose of this important update is to make tax compliance easier and guarantee that even unregistered property owners pay into the GST system when leasing out commercial space.
The Reverse Charge Mechanism or RCM on Commercial Rent imposes GST on commercial rent on the recipient tenant.
RCM on commercial rent happens when the tenant is registered and the landlord is not. The RCM on commercial rent was clarified by the government during the most recent GST Council Meeting.
In accordance with the 54th GST Council Meeting the Reverse Charge Mechanism (RCM) will impose GST on commercial properties rented to registered individuals by unregistered individuals.
Under the forward charge mechanism commercial property rentals from registered individuals to registered or unregistered individuals were subject to GST while commercial property rentals from unregistered individuals to registered or unregistered individuals were exempt from GST.
As stated in Notification No. In accordance with 09/2024-Integrated Tax (Rate) which was issued on October 8 2024 RCM will apply to services rendered by unregistered individuals to registered individuals through the rental of any property.
Notification No. 09/2024 - Central Tax (Rate) dated 08th October, 2024
Government of India
Ministry of Finance
(Department of Revenue)
Notification No. 09/2024- Central Tax (Rate)
New Delhi, the 8 th October, 2024
GSR......(E).- In exercise of the powers conferred by sub-section (3) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), number 13/2017-Central Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Subsection (i), vide number G.S.R. 692(E), dated the 28th June, 2017, namely: -
1. In the said notification, in the Table, after serial number 5AA and the entries relating thereto, the following serial number and entries relating thereto in columns (2), (3) and (4) shall be inserted, namely: -
2. This notification shall come into force with effect from the 10th day of October, 2024
[F.No. 190354/149/2024-TO(TRU-II) – Part-I CBEC]
(Dilmil Singh Soach)
Under Secretary to the Government of India
Note: -The principal notification number 13/2017 -Central Tax (Rate), dated the 28th June, 2017 was published in the Gazette of India, Extraordinary, vide number G.S.R. 692 (E), dated the 28th June, 2017 and was last amended vide notification number 14/2023 -Central Tax (Rate), dated the 19th October, 2023 published in the Gazette of India vide number G.S.R. 765(E), dated the 19th October, 2023.
Important points of the Notification
● A New Provision for RCM- Renting property other than residential dwellings will be subject to the Reverse Charge Mechanism (RCM) as of October 10 2024. Under GST commercial property can be transferred from unregistered to registered individuals.
● Owners of Unregistered Property- Owners of commercial real estate who are not registered for GST will now be subject to the RCM framework.
● The Responsibility of the Tenant- The RCM mechanism will require tenants who rent commercial real estate from unregistered landlords to pay GST.
● The GST Rate Does Not Change- For commercial property rentals the current GST rate - typically 18% will remain in effect.
● The Change's Goal is to- By ensuring that unregistered property owners pay taxes this action seeks to improve GST compliance.
● Effect on Companies- Tenants are required to keep abreast of the new tax requirements and modify their GST and accounting filings as necessary.
Clarification From the Central Board of Indirect Taxes and Customs
In the past it was unclear if movable assets like plants and machinery were covered by RCM provisions. The rule only applies to immovable properties such as the rental of buildings and land according to clarification from the Central Board of Indirect Taxes and Customs. This update eliminates any doubt regarding its application to movable assets by guaranteeing that the notification for RCM only applies to rentals of immovable property.
Leasing Residential Property is Subject to GST Taxation
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