On October 8, 2024, the Ministry of Finance (Department of Revenue) issued Notification No. 09/2024 – Central Tax (Rate), which modifies the Notification dated June 28, 2017, in line with the recommendations of the GST Council. This latest amendment expands the scope of services subject to the Reverse Charge Mechanism (RCM) under the Goods and Services Tax (GST), with new implications for renting of property.
Understanding the Original 2017 Notification
The June 28, 2017 Notification originally established that certain categories of services would be taxed on a reverse charge basis. This means that the recipient, rather than the supplier, of the specified services is responsible for paying the central tax under Section 9 of the Central Goods and Services Tax (CGST) Act. The table included in the notification lists categories of services, along with details of who supplies the service and who is responsible for paying the tax.
New Amendment Adds Renting of Non-Residential Property
The October 2024 Notification adds a new entry under serial number 5AB, specifically addressing the renting of any property other than residential dwellings. According to the new provision:
- The supplier of the service is defined as any unregistered person, while the recipient is any registered person.
In practical terms, this means that if an unregistered person rents out a non-residential property to a registered GST taxpayer, the registered taxpayer will be liable to pay GST under the reverse charge mechanism. This addition follows the same structure as previous entries, aiming to streamline tax compliance and ensure tax revenue on transactions involving unregistered suppliers.
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Implications for Businesses and Registered Persons
This notification, effective from October 10, 2024, brings new responsibilities for registered businesses that rent non-residential properties from unregistered persons. Now, such businesses are directly responsible for:
- Calculating and paying the GST on the reverse charge basis, even though the property owner (supplier) is unregistered.
- Filing and reporting these transactions under the RCM provisions, which could lead to changes in accounting and compliance procedures for affected businesses.
Objectives and Rationale for the Amendment
The modification appears to aim at:
- Bringing parity between registered and unregistered property rentals.
- Ensuring better tax collection on non-residential property rentals, which could otherwise escape the tax net.
- Streamlining the process for non-registered suppliers, who might otherwise have limited resources to manage tax compliance.
With the expanded RCM application, the government emphasizes compliance and responsibility on registered entities, rather than on unregistered suppliers, as part of a broader strategy to streamline tax processes and capture revenue effectively.
Conclusion
The Ministry of Finance’s amendment to the June 28, 2017 Notification further broadens the reach of GST’s Reverse Charge Mechanism to cover rentals of non-residential properties by unregistered persons. This change, effective from October 10, 2024, will necessitate adjustments by registered GST taxpayers who engage in these rental transactions. The government’s approach highlights its focus on enhancing compliance while bringing more transactions under the GST umbrella to facilitate tax collection.