RCM on Commercial Rentals May Boost GST Revenue, But Burden Tenants: Experts

By: Admin | September 11, 2024 | Categories: GST Recent News | 4 Min Read

GST Council’s New RCM Policy for Commercial Rentals

The GST Council’s recent decision to apply the Reverse Charge Mechanism (RCM) to commercial property rentals could boost government tax revenues but might also strain tenants financially.

Responsibility for GST Payments Shifts

A tax expert noted, “This policy shift places the GST payment responsibility on tenants. It aims to improve GST collection and significantly changes commercial property rental regulations.”

On September 9, the 54th GST Council meeting announced that GST would now apply under the RCM when an unregistered landlord rents out commercial property to a GST-registered tenant. Previously, such rentals did not incur GST. Under the new rule, GST at 18% will likely apply, matching the rate for registered landlords or commercial property use.

Objectives and Effects

This change seeks to prevent revenue leakage and broaden the tax base. Another expert explained, “This approach increases compliance for GST-registered tenants and boosts government revenue by taxing business properties, regardless of the landlord’s GST registration status.”

Impact on Tenants

While this step may streamline tax compliance, it could burden tenants, who will now pay GST directly to the government. An anonymous official from a real estate consultancy commented, “This benefits landlords and the government, but tenants will face higher GST payments.”

Though the official GST rate has not yet been confirmed, sources predict it will be around 18%, creating tax consistency across commercial rentals.

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https://aaermlawassociates.com/gst-council-rcm-commercial-rentals-september-2024/