Stox N Tax

Compulsory GST RCM on Rent

Introduction

In a significant move, the Goods and Services Tax (GST) regime has introduced compulsory Reverse Charge Mechanism (RCM) on renting of commercial property under certain conditions. As per Notification No. 09/2024-Central Tax (Rate) dated 8th October 2024, this change comes into effect from 10th October 2024.

Businesses must now discharge GST under RCM when renting commercial property from an unregistered person. This article explains the scope, impact, compliance requirements, and frequently asked questions to help you navigate this new requirement.

What is Reverse Charge Mechanism (RCM)?

Under the GST law, the supplier of goods or services typically pays the tax. However, in notified cases, this responsibility shifts to the recipient of the supply — this is known as the Reverse Charge Mechanism.

In the context of the new rule, if a registered business takes a commercial property on rent from an unregistered person, then the registered recipient must pay GST under RCM.

Legal Amendment and Notification Details

The Central Board of Indirect Taxes and Customs (CBIC) issued Notification No. 09/2024–Central Tax (Rate), dated 8th October 2024, inserting the following new entry under the RCM provisions:

“Renting of immovable property service by any person (other than body corporate) to a registered person shall be liable to tax under reverse charge mechanism, effective from 10th October 2024.”

This expands the scope of RCM to cover all unregistered individuals, sole proprietors, and others (excluding body corporates), renting property to GST-registered entities.

Effective Date

  • Effective from: 10th October 2024
  • Not retrospective: Rent paid before 10th October 2024 is not covered under this rule

Implications for Businesses

Starting from 10th October 2024:

  • GST liability on rent paid to unregistered landlords shifts to the registered tenant
  • Tax must be paid at the standard rate of 18%
  • Input Tax Credit (ITC) can be claimed if property is used for business purposes
  • Tenants must account for this in their monthly GSTR-3B filings

Illustrative Example

Case:
XYZ & Co., a registered business under GST, enters into a rental agreement on 15th October 2024 for a commercial office from an unregistered landlord, at a rent of ₹30,000/month.

Compliance Requirements:

  • GST at 18% = ₹5,400 must be paid by XYZ & Co. under RCM
  • Tax must be paid via cash ledger in GSTR-3B
  • If the office is used for business, ITC of ₹5,400 can be claimed

Compliance Checklist for Businesses

To stay compliant, registered entities should:

  1. Review all rental agreements with unregistered persons effective 10th October 2024 or later
  2. Calculate 18% GST on monthly rental payments
  3. Discharge RCM liability through the cash ledger in GSTR-3B
  4. Maintain documentary proof of the rental agreement and payments
  5. Claim ITC, if eligible, based on use for business activities

Important Clarifications

  • RCM applies only if the tenant is GST-registered
  • Residential property used for business has already been under RCM since 18th July 2022
  • No GST is applicable for rent paid before 10th October 2024
  • The landlord has no GST compliance burden in these cases

Frequently Asked Questions (FAQs)

Q1. Does RCM apply to residential property used for business?

Yes. This is governed by an earlier notification and has been applicable since 18th July 2022.

Q2. Can I claim ITC on GST paid under RCM on rent?

Yes. If the property is used for taxable business purposes and all ITC conditions are met.

Q3. When is the RCM on rent due?

The GST under RCM should be paid through GSTR-3B by the 20th of the following month in which the rent becomes due.

Q4. Is rent paid before 10th October 2024 subject to RCM?

No. The rule applies prospectively from 10th October 2024 onward.

Q5. Does the landlord need to file any GST return?

No. The liability lies entirely with the registered tenant (recipient). The landlord, being unregistered, has no GST compliance in this transaction.

Conclusion

The RCM on rent from unregistered persons, effective 10th October 2024, introduces a key compliance responsibility for registered businesses in India. Failure to adhere can result in interest, penalties, and ineligibility for ITC.

Proactive steps like reviewing existing and new lease agreements, identifying landlords’ registration status, computing liabilities monthly, and updating accounting systems are essential.

While this may increase administrative work, the availability of ITC largely neutralizes the cost impact, making compliance more of a procedural necessity than a financial burden.

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