In a significant development for small taxpayers under the composition scheme, the Central Board of Indirect Taxes and Customs (CBIC) eliminated 18% GST on rent when they lease premises from property owners not registered under GST.
This decision is expected to substantially benefit several restaurants and service providers in the sector.
The GST department previously introduced new regulations regarding GST liability for leased commercial properties, effective from Oct 10, 2024.
These regulations stipulated that tenants registered under GST would need to pay 18% GST through the reverse charge mechanism (RCM) when renting from unregistered property owners.
Industry experts argued that composition scheme participants, particularly restaurants, would struggle with working capital due to the requirement to pay 18% GST without the ability to claim input tax credit (ITC).
Expert said, “The rule created huge working capital issues for tenants who are under the composition scheme. Their turnover is less than Rs 1.50 crore, and their tax liability is 1-6% based on their business type. The 18% GST on RCM created working capital issues for a large number of small traders, manufacturers, and restaurants because they cannot claim ITC for the GST they paid. Now, the CBIC has said that if the dealer under the composition scheme occupies rented premises from an unregistered person, he/she will not have to pay the GST on an RCM basis. This will significantly help the small businesses.”
Expert noted that the CBIC implemented this notification retrospectively from Oct 10, 2024.
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