GST on Renting of Commercial Properties – Important GST amendment w.e.f. 10.10.2024
Applicability of Reverse Charge Mechanism (RCM) on Renting of Commercial Properties
Introduction:
Effective October 10, 2024, important changes have been implemented regarding the GST on commercial property rentals.
The Government of India has issued Notification No. 09/2024 – Central Tax (Rate) dated October 8, 2024, further amending Notification No. 13/2017 – Central Tax (Rate) regarding the applicability of GST under the Reverse Charge Mechanism (RCM) for the renting of commercial properties.
This notification introduces a new entry, 5AB, which mandates that Services by way of renting of any property other than a residential dwelling by any unregistered person to any registered person will now be covered under the RCM.
This notification shall come into force with effect from the 10th day of October 2024
Key Changes/Amendement:
Reverse Charge Mechanism (RCM): Previously, unregistered landlords renting out commercial properties were not required to collect or pay GST. Under the new rules, if an unregistered landlord leases a commercial property (shop, office, godowns, etc) to a registered tenant, the responsibility to pay GST shifts to the tenant. The tenant must now calculate and remit the GST directly to the government.
GST Rate: The GST rate for such commercial rentals remains at 18%. Tenants can claim Input Tax Credit (ITC) on the GST paid under RCM, provided the property is used for business purposes.
Therefore, from October 10, 2024, If any unregistered landlord rents a commercial property to a registered tenant, the tenant is responsible for paying GST directly to the government instead of the landlord.
Registered businesses renting from unregistered landlords must ensure to comply with this latest amendment. They must calculate and pay GST themselves under RCM. They can later claim this amount as ITC in their GST returns.
Unregistered landlords don’t need to collect GST but should inform tenants about their responsibility under RCM.
Let’s understand this provision with an Example:
If a tenant rents a commercial space for ₹20,000 per month, then they need to pay 18% GST (₹3600) under RCM to the government. If the property is used for business, the tenant can claim the ₹3600 as ITC.
This change aims to improve compliance and ensure proper GST collection.