In a significant move to tighten revenue leakage and enhance compliance within the Goods and Services Tax (GST) framework, the Central Board of Indirect Taxes and Customs (CBIC) has issued Notification No. 09/2024 – Central Tax (Rate), dated October 8, 2024. This notification brings under the ambit of the Reverse Charge Mechanism (RCM) the renting of commercial property when an unregistered person provides the service to a registered person. The new rule will be effective from October 10, 2024.
This decision follows the recommendations made by the GST Council during its 54th meeting held on September 9, 2024, where the Council discussed various measures to prevent revenue leakage, especially in transactions involving registered and unregistered entities.
Key Changes Introduced by Notification No. 09/2024
In exercise of the powers conferred by Section 9(3) of the Central Goods and Services Tax Act, 2017, the Central Government, upon the recommendations of the GST Council, has made the following amendments to the existing rules outlined in Notification No. 13/2017 – Central Tax (Rate), which originally outlined the services covered under the RCM:
Addition of New Serial No. 5AB in the Table
A new entry has been added to the table under serial number 5AB, which covers the service of renting out commercial properties. 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 amendment ensures that the responsibility to pay GST shifts from the unregistered property owner to the registered person receiving the service.
Reverse Charge Mechanism (RCM)
The Reverse Charge Mechanism (RCM) applies when the liability to pay GST is shifted from the supplier to the recipient of the goods or services. In this case:
- Supplier: Unregistered Person (renting out commercial property).
- Recipient: Registered Person (renting the property).
Under this notification, the registered person is responsible for discharging the GST liability under RCM for renting commercial properties from an unregistered person.
Effective Date
The provisions of this notification will come into effect on October 10, 2024.
Objective of the Amendment
The introduction of the Reverse Charge Mechanism for renting commercial properties by unregistered persons is aimed at preventing revenue leakage. When transactions involve unregistered individuals, it can be challenging to ensure compliance and collect the appropriate GST. By shifting the tax liability to the registered recipient, the government ensures more effective tax collection.
Impact on Registered Persons
For registered businesses renting properties from unregistered persons, this change in regulation will have the following implications:
Liability to Pay GST
Registered persons who rent commercial property from unregistered suppliers will now be responsible for paying GST under RCM. This process ensures that tax liabilities are discharged even when dealing with unregistered service providers.
| Scenario | Supplier | Recipient | GST Payment Responsibility |
|---|---|---|---|
| Renting of commercial property | Unregistered Person | Registered Person | Registered Person under RCM |
Input Tax Credit (ITC) Eligibility
After discharging the GST liability under the RCM, the registered person may be eligible to claim Input Tax Credit (ITC) on the GST paid, subject to the rules and conditions specified under the GST law.
Compliance and Reporting
Registered businesses must ensure that:
- GST on such rent payments is properly reported in GSTR-3B (under the RCM section).
- The liability is discharged in a timely manner to avoid penalties or interest.
| Compliance Requirement | Action for Registered Person |
|---|---|
| Reporting of RCM Liability | Disclose the tax paid under RCM in GSTR-3B |
| Payment of GST | Ensure GST is paid on the rent received |
| Claiming ITC | Claim Input Tax Credit (subject to conditions) |
Similar Notifications Under Other GST Acts
Similar notifications have been passed under the following Acts to ensure uniform application of the Reverse Charge Mechanism across the country:
| GST Act | Notification |
|---|---|
| Integrated Goods and Services Tax Act, 2017 | Notification No. 09/2024 – Integrated Tax |
| Union Territory Goods and Services Tax Act, 2017 | Notification No. 09/2024 – Union Territory Tax |
This ensures that RCM applies uniformly across the Central, State, and Union Territory GST systems.
With this amendment, the government is enhancing compliance and ensuring that GST is correctly paid, even in transactions involving unregistered service providers. Registered businesses renting commercial property from unregistered persons must now be mindful of their responsibility to discharge the GST under the Reverse Charge Mechanism starting October 10, 2024.
For further clarifications, businesses are advised to consult with their tax advisors or refer to the detailed guidelines provided by the GST Council and CBIC.
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