GST on Rent of Property - RCM, FCM or Exempt? GST on Renting commercial property, 18% GST on Rent

Summary

The video discusses recent changes in GST on rent, specifically focusing on the 54th GST Council Meeting's decisions. It explains the tax implications for residential and commercial properties, highlighting when GST applies under forward charge or reverse charge mechanisms. Key updates include changes to GST on residential property rents, where reverse charge is applicable for specific situations involving registered and unregistered persons. It also covers GST on commercial property rents, with new reverse charge provisions for unregistered landlords. The video provides clear explanations and examples to clarify these changes, along with information about related courses.

Takeaways

• 😀 GST on rent is a key topic after the 54th GST Council meeting, with changes in how GST applies to residential and commercial properties.
• 😀 For residential properties, GST is not applicable when rented to individuals for personal use, whether the lessor is registered or unregistered.
• 😀 If an unregistered person rents a residential property to a registered person for non-residential purposes (e.g., for employees or directors), GST is applicable under reverse charge mechanism (RCM).
• 😀 Changes introduced on 18th July 2022, removed GST on residential property rental for personal use and added the RCM provision for business-related use.
• 😀 For commercial properties, GST is generally applied under forward charge mechanism (FCM), where the lessor (registered person) is responsible for collecting and paying GST.
• 😀 A significant change in the 54th GST Council meeting introduced that when an unregistered person rents out commercial property to a registered person, GST must be paid under RCM by the lessee.
• 😀 The reverse charge mechanism (RCM) now applies to rental transactions between unregistered lessors and registered lessees for both residential (business use) and commercial properties.
• 😀 The expected date for the implementation of the new RCM provisions on commercial properties is 1st October 2024, pending official notification.
• 😀 The government's focus is to ensure that no revenue leakage occurs, particularly in situations where it is difficult to collect taxes from unregistered persons.
• 😀 The video also mentions various online courses on topics like GST, Income Tax, Trademark Registration, and other business-related subjects available on the speaker's website.

Q & A

What is the significance of the 54th GST Council meeting regarding GST on rent?

The 54th GST Council meeting introduced important changes to the application of GST on rental properties. These changes focus on the classification of GST under the Forward Charge Mechanism (FCM) and Reverse Charge Mechanism (RCM), specifically for residential and commercial rental properties.

What are the two mechanisms used by the government for collecting GST on rent?

The government uses two mechanisms to collect GST on rent: the Forward Charge Mechanism (FCM) and the Reverse Charge Mechanism (RCM). In FCM, the supplier collects the tax, while in RCM, the recipient of the service is responsible for paying the tax.

How does GST apply to residential properties rented by an unregistered person to a registered person?

As of 18th July 2022, if an unregistered person rents a residential property to a registered person for non-residential purposes (e.g., for use by employees or directors), the GST is payable under Reverse Charge Mechanism (RCM) by the registered person.

What changes occurred in the GST treatment of residential rental properties after 18th July 2022?

Before 18th July 2022, residential rental properties were generally exempt from GST. However, after the date, if an unregistered person rents a residential property to a registered person for purposes other than residential use, the registered person must pay GST under the Reverse Charge Mechanism.

What is the GST treatment for commercial property rentals?

For commercial properties, GST is typically collected under the Forward Charge Mechanism (FCM), meaning the supplier (property owner) pays the tax. However, if an unregistered person rents commercial property to a registered person, the tax responsibility shifts to the registered person under Reverse Charge Mechanism (RCM).

How does the Reverse Charge Mechanism (RCM) apply to commercial property rentals?

Under the Reverse Charge Mechanism, if an unregistered person rents a commercial property to a registered person, the registered person is required to pay the GST directly to the government. This shift in responsibility helps ensure tax collection from unregistered suppliers.

What was the government’s motivation behind introducing RCM for commercial property rentals?

The government introduced RCM for commercial property rentals involving unregistered persons to address challenges in tracking unregistered suppliers and to ensure that GST is collected efficiently without revenue leakage.

How does the GST Council ensure tax compliance in rental transactions?

The GST Council ensures compliance by using FCM and RCM to shift the tax responsibility between the supplier and recipient depending on their registration status. This approach helps the government track taxes more effectively, especially when dealing with unregistered persons.

What impact do these changes have on businesses renting commercial properties?

These changes require businesses renting commercial properties to be aware of their GST obligations. If they are renting from an unregistered person, they will now be responsible for paying GST under RCM, which could affect cash flow and require updates to their tax reporting processes.

How can individuals or businesses stay updated on GST changes and compliance?

Individuals and businesses can stay updated on GST changes by following official notifications, watching informative content like those provided by CA Guruji, and enrolling in relevant courses on GST, Income Tax, and TDS. Regular updates ensure compliance with the latest regulations.