Notification No. 09/2024-Central Tax (Rate) was released on October 8, 2024, by the Central Board of Indirect Taxes and Customs (CBIC) in a major effort to improve compliance with the Goods and Services Tax (GST) framework and stop revenue leakage. With effect from October 10, 2024, this notification places the rental of commercial property under the Reverse Charge Mechanism (RCM) when an unregistered individual renders the service to a registered individual. This modification complies with the suggestions put forth by the GST Council at its 54th meeting, which was conducted on September 9, 2024, with the goal of strengthening compliance and preventing tax leakage in transactions involving registered and unregistered organizations. Although commercial buildings are subject to an 18% GST on rental revenue, the most recent amendment broadens the use of RCM in specific situations.
On the Council’s recommendation, the Central Government, acting under the authority granted by sub-section (3) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), hereby makes the following additional amendments to the Government of India’s notification in the Ministry of Finance (Department of Revenue), Number 13/2017-Central Tax (Rate), dated 28 June 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Subsection (i), vide number G.S.R. 692(E), dated 28 June 2017.
Key Changes Introduced by Notification No. 09/2024 modified the current regulations as stated in Central Tax (Rate) Notification No.13/2017. The addition of Serial No. 5AB to the RCM table of services is a significant addition. 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 |
This change shifts the unregistered landlord’s GST (18%) payment responsibility to the registered tenant under RCM. The registered recipient (tenant) is in charge of figuring out and paying GST and is qualified to claim the Input Tax Credit (ITC) as long as the rented property is used for taxable purposes.
Other GST Scenarios for Rental Income (Pre-existing Provisions) The existing regulations pertaining to the GST applicability of business rental revenue remains the same, with the possible exception of the new RCM regulation.
Below are the scenarios as per the existing law:
| Summary Chart of GST Applicability Scenario | Tenant Gst | Landlord Gst | Gst Applicability | Who Pays Gst | ITC Eligiblity for Tenant |
| Both Unregistered | Not Registered | Not Registered | No Gst | No One | No |
| Both registered | Registered | Registered | 18% FCM | Landlord | Yes |
| Tenant is Unregistered, Landlord is Registered | Not Registered | Registered | 18%FCM | Landlord | No |
| Tenant is a Composition Dealer, Landlord is Registered | Composition Dealer | Registered | 18%FCM | Landlord | No |
| Tenant is a Composition Dealer, Landlord is Unregistered | Composition Dealer | Not Registered | 18% RCM | Tenant | No |
| Tenant is Registered | Registered | Not Registered | 18% RCM | Tenant | Yes |
- The burden to pay GST at 18% is not required if neither the landlord nor the tenant has obtained a GST registration.
- When both the landlord and the tenants have GST registrations, the landlord will charge the tenant 18% GST. If the property is utilized for taxable business purposes, the tenant is eligible to Claim an ITC for the GST paid.
- By enabling their GST registration, the landlord will charge 18% GST on the rent on the invoice and then pay the GST. The tenant cannot claim ITC because they are not registered.
- The landlord collects 18% GST on the rent if the tenant is a composition dealer under GST and the landlord is registered. The composition dealer tenant is unable to claim an ITC on the GST that was paid, somehow.
- Beginning on October 10, 2024, Tenants are required to pay 18% GST under RCM if they are composition dealers, and the landlord is not registered. Since the tenant is a composition dealer, they are unable to claim this payment’s ITC.
- Beginning on October 10, 2024, the Person renting must pay 18% GST under RCM if the landlord is unregistered, and the tenant is registered under GST. For the sum paid under RCM, the tenant is eligible to claim ITC.
Impact and Conclusion
The introduction of RCM for situations in which an unregistered landlord leases commercial real estate to a registered tenant is the main modification brought about by Notification No. 09/2024. This reform, which takes effect on October 10, 2024, guarantees compliance and tax collection in situations when the recipient (tenant) bears the tax burden since the service provider (landlord) is not registered. In accordance with RCM, registered tenants must account for 18% GST; if appropriate, they may also claim ITC. Businesses that lease commercial buildings from unregistered landlords must adapt to these new responsibilities.
Update on this Section
https://gstcouncil.gov.in/sites/default/files/2024-10/ctr-09-2024.pdf
Gst Council