GST Council Proposes to bring Renting of Commercial Property under RCM

The GST Council Meeting was held on September 9, 2024. The Meeting was chaired by the Finance Minister Smt. Nirmala Sitharaman with States and Union Territories Ministers.

Various decisions were taken out of the proposed ones to simplify tax compliance and ease of doing business for tax professionals and individuals.

Key Recommendation on Commercial Property

In its 54th Meeting, the GST Council took a decision to bring the renting of commercial property by an unregistered person to a registered person under the Reverse Charge Mechanism (RCM) to prevent revenue leakage as the transactions often go unrecorded in the commercial rental sector.

The meeting decided that commercial property would henceforth fall under the reverse charge mechanism. Under the RCM, the liability for paying GST will now move from the supplier, i.e. the landlord, to the recipient, or the tenant, of commercial rental services.

The decision to place renting of commercial property from unregistered suppliers under reverse charge will increase compliance burdens for registered taxpayers because it will necessitate the calculation of GST liability on all of their leased places of business.

This also aligns with the broader goals of the GST regime in reducing tax evasion and bringing more transactions into the formal economy.

What is Renting of Commercial Property?

Commercial property renting is considered as a supply of service and is liable to be taxed under the GST Act accordingly. In the event of a commercial property, the tenant (who is liable for paying rent) must pay 18% GST on the rent received.