RCM on Rent of Commercial Property under GST: Rates and Applicability

Reverse Charge Mechanism (RCM) applies when an unregistered landlord supplies renting services involving an immovable property other than a residential dwelling to a registered tenant, subject to the composition-taxpayer exclusion.

Key Takeaways

• GST on rent of commercial property in India is usually 18%.
• RCM applicability on rent GST when the landlord is unregistered and the tenant is registered. 
• Registered tenants can claim Input Tax Credit (ITC) on eligible RCM-paid rent.
• Non-compliance with the RCM GST-applicable amendment may lead to heavy interest, penalties, and even legal notices.

When Does RCM Apply on Commercial Property Rent?

Before 10 October 2024, ordinary private commercial rent transactions were generally handled under forward charge. In this case, a registered person was liable to pay GST on renting out commercial property to a registered/unregistered tenant. In contrast, an unregistered person renting commercial property to a registered/unregistered tenant was not liable to GST.

However, as of October 10, 2024, separate RCM categories apply for specified transactions. The applicability of RCM on rent of commercial property GST India now depends on the registered status of the landlord and tenant.

Here is a table showing when RCM applies to commercial property rent:

Who is Liable to Pay GST Under RCM on Rent?

The reverse charge on rent India amendment shifts the legal liability of calculating, paying GST, reporting (under GSTR-3B), and claiming Input Tax Credit (ITC) from the unregistered landlord (supplier) to the registered tenant (recipient).

Other than this new RCM rule, the existing provisions for the GST rate on commercial rent India remain unchanged. Here’s a table for different scenarios showing who is liable to pay GST on commercial rent RCM:

Note: Composition taxpayers are excluded from RCM on renting of immovable property effective January 16, 2025, under Notification No. 07/2025-Central Tax (Rate).

GST Rate on Commercial Property Rent

The applicable GST on rent of commercial property in India is 18% (9% CGST + 9% SGST) for intra-state transactions, and 18% IGST for inter-state transactions under RCM, from an unregistered landlord to a registered tenant. Let’s understand how it impacts both landlord and tenant:

• If a landlord is registered under GST, they can charge 18% GST on the rent from the tenant, along with the rent.
• If a landlord is unregistered for GST and the tenant is registered, RCM applies, and the tenant is responsible for paying 18% GST directly to the government.

These significant changes mainly impact GST on commercial rent unregistered landlords, specifically affecting smaller ones who rent out properties to registered tenants (businesses) but don’t fulfil the GST registration requirements. However, RCM doesn’t apply to small landlords whose earnings are below the GST threshold (₹20 lakh for most states/₹10 lakh for special category states) and unregistered tenants under GST.

Input Tax Credit (ITC) on RCM Paid Rent

GST-registered tenants can avail of ITC on RCM-paid rent if using the property for business purposes. This reduces rental cost for businesses; however, it only applies if the GST liability is paid to the government. Once paid, the tenant can claim the full ITC while filing the next GST returns.

Where the tenant is liable to pay GST under RCM, the tenant should issue a self-invoice and a payment voucher within 30 days from the date of receipt of the supply 

Consider this scenario:

If the rent of commercial property, like an office, shop, etc., is ₹40,000 (monthly). You would calculate GST @ 18% on the property, which is around ₹7,200, and pay this amount directly to the government under RCM. To make it tax-neutral, the government allows tenants to claim the entire amount of ₹7,200 back as Input Tax Credit (ITC) in the next GST return (if permitted).

Note: Many recipients miss ITC claims because of incorrect reporting in GSTR-3B or incomplete documentation. Therefore, maintain proper lease agreements and payment records to reduce compliance risks.