GST RCM on Commercial Rent: Rules, ITC, Self-Invoice & 2027 E-Invoicing

Summary: Since 10 October 2024, renting of commercial or other non-residential immovable property by an unregistered landlord to a registered tenant has generally been covered by the reverse charge mechanism under Serial No. 5AB of Notification No. 13/2017-Central Tax (Rate), subject to subsequent amendments and applicable exemptions. This article explains the three tests for liability, distinguishes commercial renting from residential dwelling and Government property, and examines the exclusion of composition taxpayers effective 16 January 2025 and the regularisation of the intervening period. It covers the original notification, the October 2024 corrigendum, monthly self-invoicing and payment vouchers, the thirty-day deadline under Rule 47A, time of supply under Section 13(3), and discharge of reverse-charge liability through the electronic cash ledger. The analysis also addresses eligibility for input tax credit, restrictions for exempt or personal use, Section 16(4), and Circular No. 211/5/2024-GST. Practical guidance is provided for GSTR-3B and GSTR-9 reporting, reconciliation through the RCM Liability and ITC Statement, and the treatment of rent, maintenance charges and refundable deposits. It further describes the e-invoicing expansion applicable from 1 January 2027 under Notification No. 04/2026-Central Tax for eligible taxpayers, alongside the proposed Rule 86D mechanism. Examples, frequently asked questions and a tenant compliance checklist explain how registered businesses should identify rental transactions requiring GST payment and maintain supporting records.

Introduction

If you are a GST registered business and you have taken a shop, office, godown or open yard on rent from a landlord who has no GST registration, the GST on that rent has to be paid by you, not by the landlord. This has been the law from 10th October 2024, and it still applies today.

Many small traders, doctors, contractors and even companies are still not aware of this. Such businesses can easily receive notices from the department when the rent shown in their books or income tax returns does not match the reverse charge paid in their GST returns.

In this article I have tried to explain the whole subject in very simple words. We will see what the law says, which notifications brought the change, when it applies and when it does not, how to pay, how to take credit, and what is changing from January 2027.

What is reverse charge in simple words

Normally the person who supplies goods or services collects GST from the customer and pays it to the government. This is called forward charge.

In some notified cases the law reverses this duty. The person who receives the service pays the GST directly to the government. This is called Reverse Charge Mechanism, or RCM. The power for this comes from Section 9(3) of the CGST Act, 2017 and Section 5(3) of the IGST Act, 2017. The list of services covered is given in Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017, which has been amended many times.

Why did the government bring commercial rent under RCM? Lakhs of shops and offices are let out by individuals who never took GST registration. When such a landlord gives premises to a registered business, the rent was going completely outside GST. By making the registered tenant pay the tax, the government closed this gap without forcing every small landlord to register.

The notifications and their dates

The whole provision sits in one entry, Serial No. 5AB of Notification No. 13/2017 Central Tax (Rate). The table below shows how it came in and how it changed.

Each State has issued matching State Tax (Rate) notifications under its own SGST Act, so the same rule applies to the State share of tax.

After all these changes, Serial No. 5AB now reads as follows.

When does RCM apply: the three tests

RCM under Serial No. 5AB applies only when all three of the following conditions are satisfied together. If even one is missing, this entry does not apply.

Test 1: The property is an immovable property other than a residential dwelling.

This covers shops, offices, showrooms, godowns, warehouses, factory sheds, commercial complexes, function halls, cold storages, and open land or yards used for business. The corrigendum dated 22.10.2024 made it clear that only immovable property is covered. Hiring of movable items such as machinery, vehicles or furniture does not fall under this entry.

Test 2: The landlord is not registered under GST.

It does not matter why he is unregistered. His turnover may be below the threshold, or he may have only rental income, or he may simply not have applied. As long as he has no GSTIN, this test is satisfied. If the landlord is registered, he must raise a tax invoice and charge GST himself under forward charge.

Test 3: The tenant is registered under GST and is not a composition taxpayer.

A regular registered person, whether a proprietor, firm, LLP, company, trust or society, falls under this test. From 16.01.2025, a tenant who has opted for the composition scheme is outside this entry.

There is no minimum amount of rent. Even a small monthly rent of a few thousand rupees attracts RCM when all three tests are met. The rate is 18 percent. When the property is in the same State as the tenant’s registration, this is 9 percent CGST plus 9 percent SGST. The place of supply for renting of immovable property is the location of the property under Section 12(3) of the IGST Act, 2017. So where the property is in another State, the tax head needs careful study, and such premises usually need a registration in that State as an additional place of business.

Where this RCM does not apply

The easiest way to understand the entry is to look at who is renting to whom. The table covers the common situations for commercial property.

A few more points should be kept in mind.

Where the landlord is registered, the tenant must never pay RCM on that rent. Paying RCM in such a case is a wrong payment, and the landlord still has to charge tax on his invoice.

Where the landlord gets registered in the middle of a lease, RCM stops from the date of his registration. From that date he must issue tax invoices with GST.

Renting of land for agriculture and certain other specific exemptions in Notification No. 12/2017 Central Tax (Rate) continue to apply. If a service is exempt, there is no tax to pay under forward charge or reverse charge.

Residential houses and Government property are covered by separate entries

Serial No. 5AB is not the only rent entry under RCM. Two neighbouring entries are often confused with it.

Serial No. 5AA, residential dwelling. From 18.07.2022, renting of a residential dwelling to a registered person is under RCM. Here the supplier is “any person”, so the tenant pays RCM even when the landlord is registered. A house taken by a registered firm or company for its office, or as a guest house, falls here. From 01.01.2023, the exemption is available when a registered proprietor takes a house in his personal capacity, for his own residence, and on his own account.

Serial No. 5A, Government and local authority. From 25.01.2018, when the Central Government, a State Government, a Union Territory or a local authority rents an immovable property to a registered person, the tenant pays GST under RCM. Shops let out by municipalities and panchayats are the common example.

So the first question is always this: what type of property is it, and who is the landlord? Once that is answered, the correct entry becomes clear.

How the tenant pays the tax

Since the landlord is unregistered, he cannot issue a tax invoice. The law therefore asks the tenant to do the paperwork himself. There are four simple steps.

1. Issue a self invoice. Under Section 31(3)(f) of the CGST Act, the registered tenant must issue an invoice in his own name for the rent received from the unregistered landlord. From 01.11.2024, Rule 47A of the CGST Rules requires this self invoice to be issued within 30 days from the date of receipt of the supply. Since rent is usually paid every month, a self invoice is prepared every month.

2. Issue a payment voucher. Under Section 31(3)(g), the tenant must issue a payment voucher at the time of paying the rent to the landlord.

3. Find the time of supply. Under Section 13(3), as amended from 01.11.2024, the liability arises on the earlier of the date of payment and the date of the self invoice. So if rent is paid in advance, tax becomes due in the month of payment. Delaying the self invoice does not postpone the tax.

4. Pay the tax in cash. Tax under reverse charge is not “output tax” as defined in Section 2(82) of the CGST Act. So it cannot be paid from the electronic credit ledger. It must be paid through the electronic cash ledger along with the GSTR 3B of that month. Late payment attracts interest at 18 percent per annum under Section 50(1).

On the value of supply, tax is paid on the full rent agreed. If maintenance charges, electricity or water charges are collected by the landlord as part of the rent, they also form part of the value. A refundable security deposit is not rent, but if it is later adjusted against rent, tax becomes payable on the adjusted amount.

The GST is over and above the rent. The landlord should receive his full rent, and the tenant bears the GST separately. The rent should not be reduced by the GST amount, unless the rent agreement itself says that the rent is inclusive of tax.

Input tax credit on the RCM paid

The good news is that the GST paid under RCM on rent is generally available as input tax credit, so for most businesses it is only a cash flow cost and not a real cost.

The tenant can take the credit in the same month’s GSTR 3B in which the RCM is paid, subject to the normal conditions of Section 16. The premises must be used in the course or furtherance of business, and the tax must actually be paid.

Credit will be restricted under Section 17(1) and 17(2) where the premises are used partly for personal purposes or for exempt supplies. For example, a hospital or a school that makes mostly exempt supplies will get little or no credit, and for them the RCM becomes a real additional cost.

The time limit under Section 16(4) also matters. Circular No. 211/5/2024 GST clarifies that in RCM cases where the supplier is unregistered, the relevant financial year for Section 16(4) is the year in which the recipient issues the self invoice. Even so, a self invoice issued beyond 30 days breaks Rule 47A and may attract penalty, and interest still runs from the original time of supply.

Only the tax amount is eligible. Interest or penalty paid on late RCM is never available as credit.

Reporting in the returns

Correct reporting is as important as payment, because the department now compares these tables with the rent shown in financial statements.

The self invoice is not reported in GSTR 1, because the rent is an inward supply of the tenant, not an outward supply. Since the landlord files no return, this credit will not appear in GSTR 2B. The tenant has to work out the figures from his own books.

The GST portal has also been showing an RCM Liability and ITC Statement since August 2024. It tracks the RCM declared in Table 3.1(d) against the credit claimed in Table 4(A)(3). It is good practice to check this statement every month so that excess credit is never claimed.

Latest updates in 2026

The basic rule of Serial No. 5AB has not changed since January 2025, and the rate continues at 18 percent even after the rate rationalisation of September 2025. But two important changes on the compliance side are now on the way.

E invoicing of RCM self invoices from 01.01.2027.

On the recommendation of the 57th GST Council meeting held on 08.10.2026, the government issued Notification No. 04/2026 Central Tax dated 26.10.2026. It amends Notification No. 13/2020 Central Tax and brings the self invoice issued under Section 31(3)(f) for supplies received from unregistered persons under reverse charge into the e invoicing system, from 01.01.2027. Import of services is also covered. This applies to registered persons who are already required to issue e invoices, that is, those whose aggregate turnover in any financial year from 2017 to 2018 onwards has exceeded Rs. 5 crore. The e invoice schema in Form GST INV 01 has been updated through Notification No. 05/2026 Central Tax, with a new supply type for domestic RCM. So from January 2027, a tenant in this category must generate an IRN for every self invoice raised for rent paid to an unregistered landlord. Smaller tenants can continue to issue self invoices in the normal way.

Proposed Rule 86D, statement of RCM tax and credit.

The 57th GST Council also recommended a new Rule 86D, which will give legal backing to an “Electronic Statement of tax paid on Reverse charge basis and input tax credit claimed” in Form GST PMT 02B. Under the draft placed for public comments in November 2026, RCM credit claimed in a return cannot exceed the RCM liability of that return plus the balance in this statement. The proposal is to apply it from the return period of April 2027. As on the date of this article, the rule is only proposed and not yet notified.

The message from both changes is clear. The department will soon have a ready electronic record of every rupee of RCM paid and claimed. Tenants who are not paying RCM on commercial rent today should correct it before these systems go live.

A simple worked example

M/s Lakshmi Traders of Nellore is a regular GST registered trader. It has taken a godown on rent from Mr. Ramaiah, who has no GST registration. The monthly rent is Rs. 40,000, paid on the 5th of every month.

For the month of November 2026, the rent was paid on 05.11.2026. Lakshmi Traders issues a self invoice on the same day and a payment voucher for the payment.

Mr. Ramaiah receives his full Rs. 40,000. Lakshmi Traders pays Rs. 7,200 in cash and takes the same amount as credit, which it uses against the tax on its sales in the following periods.

Now suppose the trader forgot RCM for a whole year. The rent of Rs. 4,80,000 would carry tax of Rs. 86,400. This tax must be paid in cash with interest at 18 percent per annum, and the credit may be questioned if it is claimed outside the Section 16(4) time limit. The small monthly habit of a self invoice avoids this trouble.

If Lakshmi Traders were under the composition scheme, it would pay nothing under this entry from 16.01.2025. If Mr. Ramaiah takes GST registration on some date, he must charge GST in his own invoice from that date, and Lakshmi Traders stops paying RCM.

Common doubts answered

My landlord has GST registration for his other business. Do I pay RCM?

No. GST registration is taken PAN wise in each State. If the landlord holds a GSTIN in that State, he is a registered person and must charge GST on the rent himself.

A director has let his own building to our company. Does RCM apply?

Yes, if the director is not registered under GST. The relationship does not matter. The company pays RCM on the rent, and can take credit if the building is used for business.

Our firm uses a residential house as its office. Which entry applies?

A residential dwelling taken by a registered person falls under Serial No. 5AA. RCM applies whether the landlord is registered or not.

We run a hospital and our supplies are exempt. Must we still pay?

Yes. RCM depends on your being registered, not on your outward supplies being taxable. The credit, however, will be restricted under Section 17(2), so the tax becomes a cost.

I was a composition taxpayer and paid RCM between 10.10.2024 and 15.01.2025. Can I get it back?

Circular No. 245/02/2025 GST regularised that period on “as is where is” basis. In simple words, what was paid stays paid and what was not paid will not be demanded. It does not give a right to refund.

Does my unregistered landlord now have to take registration?

Under Section 23(1)(b) of the CGST Act, a person whose only supplies are those on which the whole tax is payable by the recipient under reverse charge is not required to register. But if he also lets property to unregistered tenants and his turnover crosses the threshold, he must register.

I have not paid RCM on rent since October 2024. What should I do now?

Calculate the tax month wise, issue the self invoices, and pay the tax with interest through Form GST DRC 03 or the current GSTR 3B. Then take the eligible credit, keeping the Section 16(4) time limit in view. A voluntary payment before a notice is always better than paying after a demand under Section 74A, which governs demands from the financial year 2024 to 2025 onwards.

A practical checklist for every registered tenant

1. List every premises you have taken on rent, with the landlord’s name, the type of property and the monthly rent.

2. Check the GST status of each landlord on the GST portal using his PAN or GSTIN.

3. For each unregistered landlord of a commercial property, issue a self invoice within 30 days and a payment voucher every month.

4. Pay the RCM in cash and report it in Table 3.1(d) of GSTR 3B.

5. Claim the eligible credit in Table 4(A)(3) and check the RCM Liability and ITC Statement on the portal.

6. Match the total rent in your books and income tax return with the RCM paid, before filing GSTR 9.

7. If your turnover crosses Rs. 5 crore, get your accounting software ready to generate an IRN for RCM self invoices from 01.01.2027.

Closing words

RCM on commercial rent looks like a small entry in a long notification, but it touches almost every registered business that works from rented premises. The law is simple once the three tests are kept in mind: the property is not a residential dwelling, the landlord is unregistered, and the tenant is a regular registered person.

For most businesses the tax comes back as credit, so the real risk is not the tax but the interest and penalty that follow when it is ignored. With e invoicing of self invoices starting from January 2027 and a statutory RCM statement on the way, now is the right time to set the house in order.