GST on Commercial Rental Income – New provision

Lay man Term : The provision 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 activities.

GST on Commercial Rental Income: Scenarios Under Existing Provisions & Amendments (Effective from October 10, 2024)

The Goods and Services Tax (GST) on commercial rental income has certain provisions that remain unchanged even after the introduction of new Reverse Charge Mechanism (RCM) rules effective from October 10, 2024. Below are the key scenarios under the existing GST provisions for rental income:

1. Tenant and Landlord are Both Unregistered

• GST Applicability: No GST liability is applicable if neither the tenant nor the landlord has obtained GST registration.

2. Tenant is Unregistered, Landlord is Registered

• GST Applicability: In this case, the landlord (who is registered under GST) will charge 18% GST on the rent and remit the GST to the government.
• ITC: The tenant, being unregistered, will not be able to claim Input Tax Credit (ITC) on the GST paid.

3. Both Tenant and Landlord are Registered

• GST Applicability: The landlord will charge 18% GST on the rent.
• ITC: The tenant (if registered) can claim ITC on the GST paid, provided the property is used for taxable business purposes.

4. Tenant is a Composition Dealer, Landlord is Registered

• GST Applicability: If the tenant is a composition dealer and the landlord is registered under GST, the landlord will charge 18% GST on the rent.
• ITC: The tenant, being a composition dealer, cannot claim ITC on the GST paid.

5. Tenant is a Composition Dealer, Landlord is Unregistered (Effective from October 10, 2024)

• GST Applicability: Under Notification No. 09/2024, effective from October 10, 2024, if the tenant is a composition dealer and the landlord is unregistered, the tenant will be required to pay 18% GST under RCM (Reverse Charge Mechanism).
• ITC: The tenant, being a composition dealer, cannot claim ITC on this payment.

6. Tenant is Registered, Landlord is Unregistered (Effective from October 10, 2024)

• GST Applicability: If the tenant is registered under GST and the landlord is unregistered, the tenant must pay 18% GST under RCM starting from October 10, 2024.
• ITC: The tenant can claim ITC for the amount paid under RCM, provided the property is used for business purposes.

Conclusion

These are the primary scenarios under which GST applies to commercial rental income based on the current provisions. The RCM provisions introduced with the new amendments effective from October 10, 2024 have made changes, especially when either the tenant or landlord is unregistered or a composition dealer.