Relief to Composition Taxpayers from RCM GST on renting of property

Relief for Composition Taxpayers from GST on renting of commercial property

The Central Board of Indirect Taxes and Customs (CBIC) vide Notification No. 09/2024-CTR dated 08.10.2024, brought the service of renting commercial or immovable property (excluding residential property) under the reverse charge mechanism (RCM). This meant:

1. 1. Registered taxpayers renting property from an unregistered person had to pay GST under RCM.
   2. Payment under RCM had to be made in cash, as the Input Tax Credit (ITC) can not be used for paying RCM GST.
   3. The notification equally applied to Composition taxpayers (those under the Composition Scheme), requiring them to pay GST under RCM, but they could not claim ITC on the tax paid under RCM because they are ineligible for ITC benefits

This created a burden for composition taxpayers as well as taxpayers paying tax at reduced rate without claiming ITC (like hotels paying 5% without ITC), as it increased their cost of doing business without any benefit of ITC to offset the additional tax paid. RCM GST on Composition Taxpayers was a burden. Several concern raised by such taxpayers, based on this GST Council proposes relief from RCM.

What Relief Did the GST Council Recommend for RCM GST on Composition Taxpayers?

In the 55th GST Council Meeting held on 21.12.2024, the Council made the following recommendations to address the issue:

1. Exclude Composition Taxpayers: The Council decided to exclude taxpayers registered under the Composition Scheme from the scope of RCM on renting of commercial property. The original RCM rule was introduced under Notification No. 09/2024-CTR.
2. Regularize the Past Period: The Council resolved to regularize compliance for the period from 10.10.2024 (the effective date of the original notification) to the date of issuance of the new notification on an “as is where is” basis.

Impact of this proposal on Composition Taxpayers

• No More RCM on Rent: Composition taxpayers will no longer have to pay GST under RCM for renting commercial property from unregistered persons.
• Relief from Additional Costs: This change will reduce the tax burden on small businesses and simplify compliance for them.

However, taxpayers such as restaurants, who pay tax at a reduced rate without claiming ITC, are not covered by this proposal. I hope the government clarifies this issue and provides relief to such taxpayers as well.