GST Reverse Charge on Renting Commercial Property from Unregistered Persons: What You Need to Know
In a move to curb revenue leakage and ensure better tax compliance, the Central Board of Indirect Taxes and Customs (CBIC) has introduced a significant change under Notification No. 09/2024. Starting from October 10, 2024, renting commercial property from an unregistered person to a registered person will fall under the Reverse Charge Mechanism (RCM).
This change is part of broader efforts to tighten GST compliance, especially in transactions between registered and unregistered entities.
What’s Changing?
Under the new rules, when a registered person rents commercial property from an unregistered person, the responsibility to pay GST shifts from the property owner (unregistered person) to the business or individual renting the property (registered person). This is what’s known as Reverse Charge Mechanism (RCM).
Key Highlights of the Amendment:
- Service Affected: Renting commercial property (excluding residential property).
- New RCM Rule: The registered recipient (the person renting the property) will now have to pay the GST, not the unregistered property owner.
- Effective Date: This change takes effect from October 10, 2024.
Why the Change?
This amendment is aimed at reducing revenue leakage and improving GST compliance. Unregistered service providers often do not comply with GST regulations, making it hard for the government to collect taxes. By shifting the liability to the registered person, the government ensures that GST is collected and paid properly, even when dealing with unregistered individuals.
Impact on Registered Persons:
If your business rents commercial property from an unregistered person, here’s what you need to know:
- GST Liability: You, as the registered person, will now be responsible for paying the GST under RCM when renting property from an unregistered individual.
- Input Tax Credit (ITC): After paying GST under RCM, you may be eligible to claim Input Tax Credit (ITC) on the GST paid, as long as you meet the conditions specified under the GST law.
- Compliance and Reporting:
- You must report the GST paid under RCM in your GSTR-3B form.
- Ensure that the GST is paid on time to avoid penalties or interest.
- You can also claim the Input Tax Credit (ITC) if eligible.
Example Scenario:
- Supplier: Unregistered person renting out commercial property.
- Recipient: Registered person renting the property.
- GST Payment: The registered person must pay GST under RCM.
What Should You Do?
If you are a registered person renting property from an unregistered individual:
- Ensure GST is paid on time for such rentals.
- Report the payment in your GSTR-3B.
- Check if you are eligible to claim Input Tax Credit.
How Does This Affect Other Areas of GST?
This change is not just limited to the Central GST (CGST) law. Similar provisions have been made under the Integrated Goods and Services Tax Act (IGST) and the Union Territory Goods and Services Tax Act (UTGST), ensuring uniform application across the entire country.
Conclusion
Starting October 10, 2024, businesses renting commercial properties from unregistered persons must be aware of their responsibility to pay GST under the Reverse Charge Mechanism. This is part of the government’s efforts to enhance tax compliance and reduce revenue leakage. Ensure you stay compliant by reporting the GST correctly and claiming ITC where applicable.
For further clarifications, it’s advisable to consult your tax advisor or refer to the official guidelines from the GST Council and CBIC.
