Deepanshu Gupta
Question:
We have taken a commercial property on rent within the same state in which our business is registered. However, the owner of the property is an NRI (Non-Resident Indian). In this context, we would like to clarify whether we are liable to pay GST under the reverse charge mechanism. Additionally, we seek clarity on the place of supply — specifically, whether IGST will be applicable or if CGST and SGST should be paid.
Answer:
Upon reviewing the given scenario – renting a commercial property within the same state from a Non-Resident Indian (NRI) landlord. I believe that the following detailed analysis will assist you all in regards to the applicability of the Goods and Services Tax (GST) under the Reverse Charge Mechanism (RCM) and the determination of the place of supply (POS).
1. Background and Legislative Intent Behind Applicability of Reverse Charge Mechanism (RCM) on Renting of Commercial Property
Earlier, renting of commercial property did not attract the Reverse Charge Mechanism (RCM) under GST. The responsibility to collect and pay tax remained with the supplier (landlord) of the property. However, this led to several practical challenges.
In many cases across India, commercial properties were being rented out by unregistered individuals—owners whose aggregate turnover did not exceed the threshold limit for GST registration, or in some instances, even where it did, remained unregistered due to various reasons including lack of enforcement or awareness.
The Government, upon identifying this gap where tax leakage was potentially occurring, introduced a corrective measure by notifying RCM applicability through Notification No. 09/2024 – Central Tax (Rate) dated 8th October 2024, effective from 10th October 2024.
Objective/Purpose of the Notification:
1. To bring uniformity and clarity in taxation of commercial property rentals.
2. To ensure tax compliance and plug revenue leakage from unregistered landlords.
3. To shift the tax liability to the registered recipient who is under the formal GST network and has the ability to comply with GST obligations.
As per this notification, whenever a registered person takes a commercial property on rent from an unregistered person, GST is now payable by the recipient under RCM, regardless of the landlord’s turnover or residential status.
2. Applicability of NRTP Provisions to NRI Landlords Renting Immovable Property in India
A. Understanding NRTP (Non-Resident Taxable Person)
As per Section 2(77) of the CGST Act, 2017, a Non-Resident Taxable Person (NRTP) is defined as:
> “Any person who occasionally undertakes transactions involving the supply of goods or services or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India.”
The purpose behind introducing NRTP provisions is to bring occasional foreign suppliers—who do not maintain a permanent establishment in India—within the ambit of the GST law. This ensures that even if a foreign entity makes a short-term or one-time supply in India, they are still liable to register and pay GST without any threshold exemption.
The Government’s rationale was clear:
If any foreign person comes to India or engages in business transactions involving taxable goods or services from outside India, they must pay GST regardless of turnover. This ensures that there is no tax leakage even if the person is not regularly doing business in India.
B. Our Case: NRI Giving Property on Rent
Now, applying the above to your situation:
1. The NRI Owner is Engaged in a Regular Supply:
Renting of commercial property is a continuous or regular supply of service (as per Section 2(102) read with Schedule II of CGST Act). Hence, it cannot be classified as an occasional transaction.
2. Fixed Place of Business in India:
The NRI owns immovable property in India and is using it to supply taxable services (i.e., commercial rent). As per judicial and administrative interpretations, ownership and use of fixed immovable property for taxable supply is treated as having a “fixed establishment” or at least a “fixed base” in India. This disqualifies the person from being treated as an NRTP.
Reference:
Circular No. 37/11/2018-GST clarifies that ownership of property and regular supply from it may establish a fixed place of business.
Case Law Reference:
In re Tagros Chemicals India Pvt. Ltd. (AAR Tamil Nadu) – where it was held that owning land in India and making taxable supply could amount to having a place of business.
Therefore, in given case, the NRI landlord:
^Is not an NRTP under Section 2(77), because:
1. He is engaged in regular supply (renting).
2. He has a fixed place of business (i.e., immovable property in India).
Accordingly, he should either get registered under GST in India and charge GST under forward charge, OR if unregistered, the recipient must pay tax under reverse charge as per Notification No. 09/2024 – Central Tax (Rate).
3. Conflict Between Reverse Charge Provisions: Import of Service vs Renting of Commercial Property (Domestic RCM)
A. Nature of the Transaction and Potential Classification
In given case, the supplier is an NRI located outside India, and the recipient is located in India, while the service (renting of commercial property) pertains to immovable property located within India hence place of supply is in India.
Given these facts, the transaction appears to satisfy the conditions of both:
1. Import of Services [Section 2(11),(IGST) Act, 2017], and
2. Renting of Immovable Property by an Unregistered Person under No. 09/2024-Central Tax, which invokes domestic reverse charge.
B. Conditions for Import of Services
As per Section 2(11) of the IGST Act, a supply qualifies as “Import of Service” if:
1. Supplier is located outside India;
2. Recipient is located in India;
3. Place of supply is in India.
All three conditions are satisfied in this case, indicating that this supply may also be treated as an import of service.
C. Resolution of Conflict – Practical Treatment
From a compliance and tax liability point of view, only one RCM liability needs to be discharged. However, reporting treatment in GSTR-3B differs based on classification:
| Classification | Tax Head | Reporting in GSTR-3B | ITC Eligibility |
| Import of Service | IGST | 4A(2) | Yes |
| Domestic RCM | CGST & SGST | 4A(3) | Yes |
E. Practical Interpretation and Recommendation
In the absence of a specific clarification by CBIC, and considering that both interpretations are legally sustainable, either treatment can be justified, provided the following are ensured:
1. Tax is duly paid under RCM;
2. ITC is correctly availed;
3. Proper disclosure is made in books and GSTR-3B.
F. Concluding View
Both interpretations are legally sustainable, but must not be overlapped. Choose one classification and consistently follow it for:
1. GST liability payment;
2. GSTR-3B reporting;
3. ITC claim tracking.
The government’s main interest is in correct tax payment, not how you classify it — as long as it is transparent and compliant.
Suggested Position: Treating the transaction as Domestic service has the advantage of bringing clarity and consistency.
4. RCM and Determination of Supplier for Place of Supply: A Legal Dilemma
A. Legal Basis of RCM – Section 9(3) and 9(4) of the CGST Act
Under Section 9(3) of the CGST Act:
> “The tax on supply of certain goods or services shall be paid by the recipient of such supply, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax.”
This leads to a fundamental question:
For the purposes of determining intra-State vs inter-State nature of supply under Section 8 and 12 of the IGST Act, who should be treated as the “supplier” in an RCM transaction?
B. The Dilemma: Who is the Supplier in an RCM Scenario?
This issue creates two possible views:
View 1: Original Supplier as Supplier (NRI Landlord)
In this approach, location of the actual supplier (NRI or unregistered person) is considered for evaluating the nature of supply.
If the supplier is outside India or in another State, and the place of supply is in the recipient’s State, the supply may appear inter-State, thereby attracting IGST.
Challenge:
In many such cases, the recipient (located in State A) may be forced to pay CGST/SGST of State B where the supplier is located, which is administratively unviable and against the principle of destination-based taxation.
View 2: Deemed Supplier is the Recipient (under RCM)
Here, since Section 9(3) deems the recipient as the person liable to pay tax, the recipient is treated as the supplier for all practical purposes, including for determination of place of supply and type of GST (CGST/SGST or IGST).
This resolves the mismatch between location of supplier and place of supply and ensures the correct State receives its share of revenue.
C. Illustration:
Let us take two scenarios to understand this:
Example 1 (Place of Supply = Maharashtra; Supplier = MH; Recipient = MP):
If we treat actual supplier as supplier, supply is intra-State in Maharashtra (CGST+SGST).
But the recipient is in MP and cannot pay Maharashtra CGST & SGST.
Hence, not administratively feasible.
Example 2 (Place of Supply = MP; Supplier = MH; Recipient = MP):
If recipient is deemed supplier, the supply is intra-State (MP-MP) and CGST+SGST of MP is correctly paid.
D. Recommendation and Practical Approach
Given the above legal and administrative interpretations:
It is logical and practical to treat the recipient as the deemed supplier under RCM for evaluating the nature of supply.
This approach is also consistent with the GST Council’s objective of destination-based taxation.
Hence, in this context, we recommend:
> “In case of Reverse Charge Mechanism, the recipient of supply should be treated as the supplier for the limited purpose of determining intra-state or inter-state nature of supply, thereby aligning with tax portal logic, ease of payment, and correct State-wise revenue distribution.”
Note:
This area remains debatable and interpretational in nature. Both views exist, but from a compliance and revenue standpoint, the second view is more feasible and widely accepted in practice.
5. Determination of Place of Supply: Renting of Immovable Property under GST
A. Relevant Provisions
The determination of place of supply in the context of services is governed by:
Section 12 of the IGST Act, where both supplier and recipient are located in India.
Section 13 of the IGST Act, where either the supplier or the recipient is located outside India.
B. Renting of Immovable Property – Specific Rule
Both Sections 12(3) and 13(4) of the IGST Act provide a specific overriding rule for services related to immovable property, including renting. The relevant text:
Section 12(3):
> “The place of supply of services, directly in relation to an immovable property… including services provided by way of renting of immovable property, shall be the location at which the immovable property is located or intended to be located.”
Section 13(4):
> “The place of supply of services supplied directly in relation to an immovable property… shall be the place where the immovable property is located or intended to be located.”
Thus, irrespective of whether the transaction is domestic or cross-border:
If the supply pertains to immovable property, the place of supply shall be the location of the property itself.
C. Application to the Present Case
The supply in question is renting of a commercial property. The immovable property is located in India, and more specifically, in the State where the recipient is also registered. Therefore:
Place of supply = State where property is located (e.g., Gujarat, Delhi, etc.).
This applies whether the supplier is a resident or an NRI.
D. Implication on Nature of Supply
Given that:
The recipient is registered in the same State as the property is located, The place of supply and location of recipient are the same,
Hence, as per Section 8(2) of the IGST Act:
> “Where the location of the supplier and the place of supply are in the same State, it shall be treated as an intra-State supply.”
Therefore, the supply shall be treated as an intra-State supply and will attract CGST and SGST.
Final Opinion on GST Implications for Renting of Commercial Property from an NRI Landlord
> The renting of commercial property from an unregistered NRI landlord shall be taxable under the Reverse Charge Mechanism. The place of supply being in the same State as the recipient’s registration makes it an intra-State supply, attracting CGST and SGST @ 9% each. The GST liability is to be discharged by the recipient and can be availed as input tax credit subject to regular conditions.
Please correct me if i have overlooked any provision.
