In a notable effort to mitigate revenue loss and improve adherence to the Goods and Services Tax (GST) regulations, the Central Board of Indirect Taxes and Customs (CBIC) released Notification No. 09/2024 – Central Tax (Rate) on October 8, 2024. This notification introduces the Reverse Charge Mechanism (RCM) for the renting of commercial property when an unregistered individual provides the service to a registered individual, effective from October 10, 2024.
This adjustment is in accordance with the recommendations put forth by the GST Council during its 54th meeting on September 9, 2024, which sought to enhance compliance and mitigate revenue loss in dealings between registered and unregistered entities. The 18% GST on rental income for commercial properties has been in place, and the recent amendment broadens the applicability of the Reverse Charge Mechanism in specific situations.
Key Changes Introduced by Notification No. 09/2024
The Central Government, exercising its authority under Section 9(3) of the Central Goods and Services Tax Act, 2017, has amended the current regulations as per Notification No. 13/2017 – Central Tax (Rate), following the recommendations of the GST Council. The inclusion of Serial No. 5AB in the table of services under RCM represents a significant enhancement.
New Entry Under Serial No. 5AB:
The exact entry is as follows:
| Serial No. | Category of Supply of Services | Supplier of Service | Recipient of Service |
|---|---|---|---|
| 5AB | Service by way of renting of any property other than residential dwelling. | Any unregistered person | Any registered person |
With this change, the registered tenant under RCM is now responsible for paying the 18% GST instead of the unregistered landlord. The tenant must calculate and remit GST, and may be eligible to claim Input Tax Credit (ITC), contingent upon the rented property being utilized for taxable activities.
Other Potential Situations for GST on Rental Income (current Provisions)
The new RCM rule has been introduced; however, the current provisions regarding GST applicability on commercial rental income continue to remain unchanged in other scenarios. The following scenarios are outlined in accordance with the current law:
- Both the tenant and the landlord are unregistered.
If neither the tenant nor the landlord have obtained GST registration, the obligation to remit GST at a rate of 18% does not apply. - The tenant is not registered, while the landlord is registered.
In this situation, the landlord, who is registered under GST, will apply an 18% GST on the rental amount in the invoice and subsequently remit the GST collected. The tenant, due to their unregistered status, will be ineligible to claim Input Tax Credit. - Tenants and landlords are both registered.
In instances where both the landlord and the tenant are registered under GST, the landlord is obligated to collect an 18% GST from the tenant. The tenant is eligible to claim Input Tax Credit for the GST paid, as long as the property is utilized for taxable business activities. - The landlord is registered, and the tenant is a composition dealer.
In the scenario where the tenant qualifies as a composition dealer under GST and the landlord holds a registered status, the landlord is obligated to impose an 18% GST on the rental amount. Nevertheless, the dealer tenant under the composition scheme is not eligible to claim Input Tax Credit on the GST paid. - The tenant is registered, while the landlord is not.
Commencing October 10, 2024, in instances where the tenant is registered under GST and the landlord remains unregistered, the tenant must remit 18% GST under the Reverse Charge Mechanism (RCM). The tenant is eligible to claim Input Tax Credit for the amount remitted under Reverse Charge Mechanism.
Summary Chart of GST Applicability
Scenario Tenant’s GST Status Landlord’s GST Status GST Applicability Who Pays GST? ITC Eligibility for Tenant 1. Both Unregistered Not Registered Not Registered No GST N/A N/A 2. Tenant Unregistered Not Registered Registered 18% FCM Landlord No 3. Both Registered Registered Registered 18% FCM Landlord Yes 4. Tenant Composition Dealer Composition Dealer Registered 18% FCM Landlord No 5. Tenant Composition Dealer Composition Dealer Not Registered 18% RCM Tenant No 6. Tenant Registered Registered Not Registered 18% RCM Tenant Yes
Under the recent amendment introduced by Notification No. 09/2024, Kanoons offers critical support to businesses in complying with the Reverse Charge Mechanism (RCM) for leasing arrangements. With our expertise in taxation and legal compliance, Kanoons provides guidance on the new regulation, ensuring that registered tenants accurately fulfill their tax obligations when leasing commercial property from unregistered landlords.
Kanoons can assist registered tenants in understanding their responsibilities, including reporting the 18% GST under RCM. Our team will help businesses streamline the process for claiming Input Tax Credit (ITC) where eligible, optimizing cash flow and ensuring compliance with the amended guidelines. Furthermore, we offer ongoing support to adapt to these new regulatory obligations, minimizing potential risks and maintaining seamless compliance.
By partnering with Kanoons, businesses can confidently navigate the complexities of RCM and focus on growth, knowing their tax liabilities are expertly managed.
