Summary: Under GST, renting of commercial properties has always been taxable. Initially, residential properties rented for residential purposes were exempt. Effective July 18, 2022, the exemption was modified to exclude cases where residential properties are rented to registered persons, making such transactions taxable under Reverse Charge Mechanism (RCM). Notification No. 05/2022-Integrated Tax (Rate) introduced this change, requiring registered persons to pay 18% GST on such rentals under RCM while being eligible for Input Tax Credit (ITC). From October 10, 2024, renting of commercial properties by unregistered persons to registered persons also falls under RCM, as per Notification No. 09/2024-Integrated Tax (Rate). Here, the registered recipient must discharge the 18% GST liability. However, if both parties are registered, the transaction continues to be taxed under Forward Charge Mechanism (FCM). For residential properties, there are no further changes. Tax under RCM applies to rentals by any person to a registered recipient, except when the registered person rents in their personal capacity. Thus, compliance differs based on property type, rental arrangements, and GST registration status of parties involved.
Original Provision from introduction of GST:
Renting of Commercial Property – Taxable as it was not covered under exemption list.
Renting of Residential property – Originally exempt as “Renting a residential dwelling for use as residence is exempted through entry No. 13 of Notification No. 09/2017-Intergrated Tax (Rate)”
No Concept of RCM for any property at that time.
With effect from 18th July, 2022
Renting of Commercial Property – Taxable as it was not covered under exemption list. No further notification regarding this.
Renting of Residential property – Amended the wordings in the original exemption list to “Renting a residential dwelling for use as residence except where residential dwelling is rented to registered person” through entry No. 13 of Notification No. 09/2017-Intergrated Tax (Rate)”
And the same was brought into RCM by adding a new entry” Services by way of renting of residential dwelling by any person to a registered person (Entry No. 6AA of RCM Notification) notified through Notification No. 05/2022- Integrated Tax (Rate) dated 13-07-2022.
This implied if that if any person whether registered or unregistered rents residential property to registered person then tax liability at rate of 18% need to be discharged by registered person through RCM and ITC can be claimed.
With effect from 10th October, 2024
Renting of Commercial Property – Taxable as it was not covered under exemption list.
The renting of commercial property by any unregistered person to any registered person is liable to GST under RCM through Notification No. 09/2024 – Integrated Tax (Rate) dated 8th October 2024.
It implies that
If registered person rents commercial property to registered person, will be Taxed under Forward charge and RCM will not be applicable.
If unregistered person rents commercial property to registered person, then tax liability at rate of 18% need to be discharged by registered person through RCM and ITC can be claimed.
Renting of Residential property –
No further amendment w.r.t residential property. Earlier provision continues.
Amended the wordings in the original exemption list to “Renting a residential dwelling for use as residence except where residential dwelling is rented to registered person” through entry No. 13 of Notification No. 09/2017-Intergrated Tax (Rate)”
And the same was brought into RCM by adding a new entry” Services by way of renting of residential dwelling by any person to a registered person (Entry No. 6AA of RCM Notification) notified through Notification No. 05/2022- Integrated Tax (Rate) dated 13-07-2022.
This implied if that if any person whether registered or unregistered rents residential property to registered person then tax liability at rate of 18% need to be discharged by registered person through RCM and ITC can be claimed.
Conclusion:
With effect from 10/10/2024
Commercial Property
Renting of Commercial property by registered person to registered or unregistered – Tax under FCM @18%.
Renting of Commercial property by unregistered person to registered – Tax under RCM @18%.
Residential Property:
Renting of residential property by registered/unregistered person to registered person – Tax under RCM @18%.
Except where the proprietor who is registered under GST rents a residential property in his personal capacity. (No RCM will be applicable)
*FCM – Forward Charge Mechanism
*RCM – Reverse Charge Mechanism
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