In a significant move to boost tax revenue, the GST Council has decided to bring the renting of commercial properties under the Reverse Charge Mechanism (RCM), a decision that is expected to increase the compliance burden for tenants but benefit the government’s GST collection. The new rule was announced during the 54th GST Council meeting on September 9, 2024.
Under this policy change, if a person who is not GST-registered rents out a commercial property to a GST-registered individual or entity, the tenant will be liable to pay GST under the RCM framework. Previously, GST at 18% was only applicable if the landlord was a registered entity. However, this new mechanism extends the tax liability to tenants renting from unregistered landlords, plugging revenue leakages and widening the tax net.
A tax expert explained, "This shift ensures that the GST burden is transferred to the tenant, who is often GST-registered, thereby increasing the likelihood of GST payments being made. This move is expected to reduce tax evasion in the rental property market."
Industry insiders are concerned about the increased costs this policy will impose on tenants, as they will now bear the responsibility of paying the 18% GST, which is yet to be officially confirmed but widely expected by experts.
While the new mechanism aims to improve tax compliance, industry voices caution that it could drive up costs for businesses renting commercial properties. "This decision benefits landlords and the government, but tenants will face higher operational costs as a result," a real estate consultant said.
As the government moves to close tax loopholes and improve its revenue collection, the broader implications of the RCM on commercial tenants and rental markets will continue to be closely watched.
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