India 
Canada
Litigation issue involves Rental Income
Under Section 9(3) and 9(4) of the Central Goods and Services Tax (CGST) Act, 2017, the Reverse Charge Mechanism shifts the liability to pay GST from the supplier to the recipient of goods or services. While typically the supplier collects and remits GST, RCM is applied to ensure tax compliance in specified cases, especially when transactions involve unregistered suppliers.
Recent updates in RCM rules address rental transactions:
These provisions aim to streamline GST compliance and ensure equitable taxation in rental transactions
| Notification/Circular | Property Type | GST Applicable | Mechanism | Effective Date |
| Notification No. 05/2022-Central Tax (Rate) | Residential Property | 18% GST on renting for residentail purposes if tenant is GST-registered | Reserve Charge | July 18, 2022 |
| Notification No. 09/2024-Central Tax (Rate) | Commercial Property | 18% GST on renting from unregistered landlords if tenant is GST-registered | Reserve Charge | October 10, 2024 |
GST on Renting of Residential and Commercial Properties
• Residential Property: Until July 18, 2022, renting residential dwellings for residential use was exempt from GST. However, Notification No. 05/2022- Central Tax (Rate) mandates 18% GST on such rentals when the tenant is GST- registered, payable under the Reverse Charge Mechanism (RCM).
• Commercial Property: Renting commercial properties has been subject to 18% GST under the forward charge mechanism. From October 10, 2024, as per Notification No. 09/2024-Central Tax (Rate), GST-registered tenants renting from unregistered landlords must pay 18% GST under RCM
Scenarios of GST Applicability on Rent
To elucidate the applicability of GST under various scenarios, consider the following chart:
| Property Type | Usage | Landlord GST Status | Tenant GST Status | GST Applicable | Mechanism |
| Residentail | Residentail | Registered | Registered | 18% | Reserve Charge |
| Residentail | Residentail | Unregistered | Registered | 18% | Reserve Charge |
| Residentail | Residentail | Registered | Unregistered | Exempt | Not Applicable |
| Residentail | Residentail | Unregistered | Unregistered | Exempt | Not Applicable |
| Commercial | Commercial | Registered | Registered | 18% | Forward Charge |
| Commercial | Commercial | Unregistered | Registered | 18%(w.e.f. Oct 10, 2024) | Reserve Charge |
| Commercial | Commercial | Unregistered | Unregistered | Exempt | Not Applicable |
To determine if a property is residential or commercial for GST under RCM. consider the following chart:
| Factor | Residentail Property | Commercial Property | Verification |
| Nature of the Property | Designed and approved for residentail use, such as houses, apartments, or flats | Approved for commercial or business activities, such as offices, shops, warehouses, or retail spaces. | Check property documents like occupancy certificates, zoning approval or building plans for intented use. |
| Relevant Notification | Notification No. 05/2022 applies when rented to GST-registered tenants for residentail purposes. | Notification No. 09/2024 applies when rented by unregistered landlords to GST-registered tenants for commercial use. | Refer to purpose stated in the lease agreement and check notification applicability. |
| Documenation and Records | Clear documenation of property approval type, lease agreement, and tenant’s declaration of intented use is required. | Clear documenation of property approval type,lease agreement, and tenant’s declaration of intented use is required. | Maintain proper records to classify the property accurately and ensure GST compliance under RCM supervision. |
Key Takeaways
• Residential Property Rentals: GST at 18% is applicable under RCM when rented to GST-registered tenants for residential purposes.
• Commercial Property Rentals:
o Prior to October 10, 2024: GST at 18% under forward charge by the landlord.
o Effective October 10, 2024: GST at 18% under RCM when rented by unregistered landlords to registered tenants.
Conclusion
The introduction of RCM in rental transactions aims to enhance tax compliance and streamline GST collections. Both landlords and tenants must stay informed about these provisions to ensure adherence and avoid potential penalties.
If you have any queries, feel free to connect with us through the contact details provided on our website or use the information below:
Regards,
CA. Akshay
Partner
Mobile: 8527238625
Email: infodelhi@corporategenie.in
