RCM Applicable on Rent on both Commercial property and Residencial property from October 2024

Starting October 2024, the Reverse Charge Mechanism (RCM) will apply to rent payments for both commercial and residential properties if the property owner is unregistered and does not provide a GST invoice. This means that tenants will now be responsible for calculating and paying GST on rent under RCM.

What is Reverse Charge Mechanism (RCM)?

Under the RCM system, the liability to pay GST on rent shifts from the supplier (property owner) to the recipient (tenant). This means if you rent a commercial space and the owner does not have a GST registration (GSTN), you, as the tenant, must calculate and pay GST on the rent under RCM.

Who Needs to Pay GST Under RCM?

1. Commercial Property Rent – Tenants renting office spaces, warehouses, retail outlets, or any other commercial property from an unregistered landlord must pay GST under RCM.
2. Residential Property Rent – If a residential property is rented for commercial use, and the landlord is not GST-registered, the tenant is liable to pay GST under RCM.

Important Points:

1. Applies to Unregistered Property Owners – If your landlord does not have a GST number, you must pay GST on the rent.
2. Applicable to Commercial Rentals – Includes office spaces, warehouses, retail outlets, and other commercial properties.
3. Payment & Compliance – Businesses need to calculate and pay GST under RCM for each state GSTN while filing GSTR-3B.
4. No Input Tax Credit (ITC) for Owner – Since the GST is paid by the tenant under RCM, the property owner cannot claim ITC.

How Does This Impact Tenants?

• Increased Compliance: Businesses must ensure proper GST calculation and timely filing.
• Cash Flow Considerations: Since GST is payable by the tenant, financial planning is essential.
• Verification of Owner’s GST Status: Always check if your landlord is GST-registered to determine if RCM applies..

With the new rule in place, businesses should be prepared for RCM on rent payments and maintain proper documentation to avoid penalties. If in doubt, consult a GST expert to ensure smooth compliance with the latest regulations.