GST RCM on Rent

Understanding GST on Rent: RCM on Rent for Renting of Commercial Property

In October 2024, significant updates were introduced to the Goods and Services Tax (GST) framework concerning the renting of commercial properties in India. These changes, effective from October 10, 2024, primarily focus on the application of the Reverse Charge Mechanism (RCM) to certain rental transactions. Understanding these updates is crucial for both landlords and tenants to ensure compliance and optimize tax benefits.

What is GST on Rent for Commercial Properties?

Goods and Services Tax (GST) on rent applies when a commercial property is rented out for business purposes. Under GST law, renting out a property is considered a supply of service, making it taxable under GST at 18%.

If you are a landlord renting a commercial space, you may need to charge GST on rent and submit it to the government. However, in certain cases, the responsibility to pay GST falls on the tenant under the Reverse Charge Mechanism (RCM).

How does GST apply to rent for commercial properties?

GST applies to commercial property rent under the Forward Charge Mechanism (FCM) or Reverse Charge Mechanism (RCM) based on the registration status of the landlord and tenant:

1. Forward Charge Mechanism (FCM) – Landlord Collects GST

• If the landlord is registered under GST, they must charge 18% GST on the rent from the tenant and deposit it with the government.
• The tenant can claim Input Tax Credit (ITC) if they use the rented property for business purposes.

2. Reverse Charge Mechanism (RCM) – Tenant Pays GST

• If the landlord is unregistered, but the tenant is registered under GST, the tenant must pay GST under RCM instead of the landlord.
• The tenant can claim ITC on the GST paid under RCM.

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