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In exercise of the powers conferred by Section 9(3) of the Central Goods and Services Tax Act, 2017, the Central Government, on the recommendations of the GST Council, amended the existing rules outlined in Notification No. 13/2017 – Central Tax (Rate).
This amendment shifts the responsibility of paying GST (18%) from the unregistered landlord to the registered tenant under RCM. The registered recipient (tenant) is required to calculate, pay GST, and may claim Input Tax Credit (ITC), provided the rented property is used for taxable.
The key change brought by Notification No. 09/2024 is the introduction of RCM for scenarios where an unregistered landlord rents out commercial property to a registered tenant. Effective from October 10, 2024, this change ensures compliance and tax collection in cases where the service provider (landlord) is unregistered, shifting the tax burden to the recipient (tenant). Registered tenants need to account for the 18% GST under RCM, and they can claim ITC where applicable. For businesses renting commercial properties from unregistered landlords, it is crucial to adapt to these new responsibilities.
In addition to the new RCM rule, the existing provisions on GST applicability on commercial rental income remain unchanged in other cases. Below are the scenarios as per the existing law:
Tenant and Landlord are Both Unregistered
If neither the tenant nor the landlord has obtained a GST registration, the liability to pay GST at 18% is not applicable.
Tenant is Unregistered, Landlord is Registered
In this scenario, the landlord (being registered under GST) will charge 18% GST on the rent in the invoice and remit the GST. The tenant, being unregistered, will not be able to claim ITC.
Both Tenant and Landlord are Registered
When both the landlord and the tenant are registered under GST, the landlord will collect 18% GST from the tenant. The tenant can claim ITC for the GST paid, provided the property is used for taxable business purposes.
Tenant is a Composition Dealer, Landlord is Registered
If the tenant is a composition dealer under GST and the landlord is registered, the landlord charges 18% GST on the rent. However, the composition dealer tenant cannot claim ITC on the GST paid.
Tenant is a Composition Dealer, Landlord is Unregistered
As per Notification No. 09/2024, effective from October 10, 2024, if the tenant is a composition dealer and the landlord is unregistered, the tenant must pay 18% GST under RCM. The tenant, being a composition dealer, cannot claim ITC on this payment.
Tenant is Registered, Landlord is Unregistered
Starting from October 10, 2024, if the tenant is registered under GST and the landlord is unregistered, the tenant is required to pay 18% GST under RCM. The tenant can claim ITC for the amount paid under RCM.
