Why This Topic Demands a Fresh Look

Two major amendments — one in July 2022 and one in October 2024 — have fundamentally changed how GST applies to rent. Between them, they cover residential accommodation rented by registered businesses and commercial premises rented from unregistered landlords.

Together, they close what was a significant revenue gap. For businesses, they create compliance obligations that did not exist a few years ago. If your rent agreements haven't been reviewed with GST in mind recently, now is the time.

The Full RCM Picture on Rent — All Scenarios

Before getting into the mechanics, here is a clean reference table covering every combination:

RCM Provision 1 — Residential Rent (w.e.f. 18 July 2022)

Legal basis: Entry in Notification No. 05/2022-CT(R) dated 13 July 2022, amending Notification No. 13/2017-CT(R) under Section 9(3) of the CGST Act, 2017.

If you are a GST-registered business renting a residential flat — for a director, senior employee, or as a guest house — from an unregistered landlord, you pay GST at 18% under RCM. The landlord raises no tax invoice. You calculate it, self-invoice, and pay.

This catches most mid-sized companies off guard. Metropolitan businesses routinely rent residential units for key personnel. Every such arrangement, if the landlord is unregistered, has carried an RCM liability since July 2022.

RCM Provision 2 — Commercial Rent (w.e.f. 10 October 2024)

Legal basis: Notification No. 09/2024-CT(R) dated 8 October 2024, inserting Entry 5AB into Notification No. 13/2017-CT(R) under Section 9(3) of the CGST Act, 2017. CBIC also issued a Corrigendum dated 22 October 2024 clarifying that "any property" in Entry 5AB is to be read as "any immovable property."

This is the significant new addition. If your business rents an office, shop, warehouse, or any commercial premises from an unregistered landlord — private individual, family member, HUF, or any unregistered entity — you now owe GST at 18% under RCM.

Before 10 October 2024, this was a genuine gap in the law. Unregistered landlords simply did not charge GST, and tenants had no RCM obligation. The 54th GST Council meeting in September 2024 specifically identified this as a revenue leakage point and recommended plugging it.

It is now plugged. And notably, the obligation applies regardless of the rent amount — there is no minimum threshold.

ITC on RCM Paid — What You Can and Cannot Claim

Regular GST registrant: ITC is fully available on RCM paid for rent, provided the property is used for taxable business activities. Claim it in the same GSTR-3B period in which you discharge the liability.

Composition dealer: In its 55th meeting, the GST Council has decided that composition taxpayers under GST are no longer required to pay GST on a reverse charge basis on rented premises from unregistered persons. 

Important caveat on residential rent: If the residential flat rented for an employee has any personal-use character, ITC eligibility becomes contentious under Section 17(5) of the CGST Act, 2017. Ensure your rent agreement, internal policy, and accounting entries clearly establish business purpose.

Compliance Checklist

Audit all rent agreements Identify every property rented in your business's name. Separate residential from commercial. Check the registration status of each landlord.

Determine RCM applicability Apply the table above. Any commercial property from an unregistered landlord post 10 October 2024, and any residential property from an unregistered landlord post 18 July 2022, triggers RCM.

Issue a self-invoice For each rental period, issue a self-invoice under Rule 46 of the CGST Rules. This is a mandatory document, not optional.

Pay in cash RCM liability must be paid through your electronic cash ledger. You cannot use existing ITC balance to offset it. Pay first, claim ITC after.

Report correctly in returns

• GSTR-3B: Report RCM liability under Table 3.1(d). Claim ITC under Table 4A(3) in the same period.
• GSTR-1: No reporting required for RCM inward supplies.
• Place of supply: Always use CGST + SGST of the state where the property is located — even if your registration is in a different state. Do not use IGST for commercial rent RCM.

A Practical Example

A Hyderabad-based trading company rents a 2,000 sq ft warehouse in Secunderabad for ₹60,000/month from an individual who is not GST-registered. The company itself is registered under GST.

From October 2024 onwards:

• RCM liability: ₹60,000 × 18% = ₹10,800/month
• Payment: ₹10,800 paid in cash to the government via GSTR-3B
• ITC claim: ₹10,800 claimable in the same period (assuming warehouse is used for taxable outward supplies)
• Net cash impact: Nil — but the compliance steps are mandatory. Skip them and you are looking at interest under Section 50 and penalty under Section 122 of the CGST Act, 2017.

The Takeaway

Check every rent agreement your business holds. If you are a registered entity renting commercial space from an unregistered landlord, you have an RCM obligation from October 2024. If you are renting residential accommodation for business use from an unregistered individual, the obligation runs from July 2022. Both require cash payment, self-invoicing, and return reporting. Neither is optional.

CA Praneeth Thunuguntla | Thunuguntla & Associates | Income Tax & GST Advisory