GST on Commercial Rental Income: Key Amendments & RCM Applicability from 10-10-2024

Commercial rental income has always been a significant component of taxable services under GST, given the scale and frequency of commercial leasing in India. However, recent amendments effective from 10 October 2024 introduce transformative changes to the taxability, compliance requirements, and mode of payment for GST on commercial rentals. These changes target both landlords and tenants, ensuring transparency in rental transactions, strengthening tax discipline, and preventing revenue leakages. The shift includes major clarifications on reverse charge mechanism (RCM) applicability, thresholds, exemptions, and invoicing obligations. This thesis provides a detailed, structured analysis of these amendments and their implications.

Under the earlier GST framework, renting or leasing of commercial property has always been treated as a supply of service, attracting GST at 18% under forward charge. Landlords registered under GST were required to issue invoices, collect GST from tenants, deposit it with the government, and file regular returns.

However, challenges persisted:

• Difficulty in tracking rental income
• Non-compliance by small landlords
• Tax leakage in high-value commercial areas
• Contract structuring to bypass GST
• Disputes in classification of mixed-use properties

The amendments of 10-10-2024 aim to simplify compliance and improve tax recovery without over-burdening genuine taxpayers.

The policy changes revolve around three core areas:

• RCM applicability for specified commercial rental situations
• Threshold adjustments for compulsory registration
• Refined classification of commercial vs. mixed-use properties

Each amendment significantly reshapes how GST is levied and reported on rental income.

Even after the 2024 amendments, the fundamental rules remain the same:

• GST at 18% applies to commercial rentals
• GST is charged on the taxable value, including maintenance and ancillary charges
• Refundable security deposits do not attract GST unless adjusted
• Input Tax Credit (ITC) remains available to tenants for business use

The amendments focus mainly on administrative restructuring rather than changing GST rates.

Introduction of Reverse Charge Mechanism (RCM) on Commercial Rentals

One of the most significant changes effective from 10-10-2024 is the selective introduction of RCM on commercial property renting, shifting tax liability from landlord to tenant in specified cases.

a. When RCM Applies

RCM applies when:

• The landlord is unregistered under GST; and
• The property is rented to a GST-registered business entity; and
• The rental value exceeds a specific monetary threshold per annum.

This amendment targets landlords who earn significant rental income but avoid GST registration.

b. Rationale for RCM Introduction

Ensures commercial tenants deal with compliant tax processes; prevents revenue loss where landlords remain unregistered despite high income; simplifies compliance for landlords not engaged in other taxable supplies; brings parity between registered and unregistered rental service providers.

c. Impact on Tenants

Tenants must:

• Pay GST under RCM in cash
• Claim ITC (Input Tax Credit) to offset their output tax
• Report RCM liability in their monthly GSTR-3B
• Maintain self-invoicing where required

RCM makes businesses responsible for ensuring tax compliance in commercial leasing.

Despite the RCM expansion, most commercial rental scenarios continue under forward charge, such as:

• Registered landlord renting to registered tenant
• Commercial properties owned by companies, LLPs, or large institutions
• Co-working spaces offering bundled services
• Shopping complex rentals, mall spaces, kiosks, logistics hubs
• Renting accompanied by utilities, maintenance, and CAM charges

Thus, RCM is not universal; it applies only to carefully defined unregistered-landlord situations.

The amendments adjust the rules for GST registration:

Earlier
Landlords were required to register only if aggregate turnover exceeded ₹20 lakh.

From 10-10-2024
The following rule applies:

Any person earning commercial rent above ₹10 lakh per annum must take GST registration, regardless of other income.

This prevents landlords who earn heavy rental income from escaping GST simply because they have no other business.

A major compliance gap under previous GST structure was the ambiguity around mixed-use properties, such as:

• Residential buildings used for offices
• House converted into shops or coaching centres
• Residential units leased as warehouses or clinics

Clarification Introduced

A property is considered commercial for GST if:

• It is used for business, commerce, or professional activity;
• It generates business revenue for the tenant;
• It is declared commercial under municipal or development authority rules.

This clarification prevents misuse of residential classification to avoid GST.

a. Landlord (Forward Charge Cases)

Must:

• Register under GST (if threshold met)
• Issue GST invoice monthly
• Charge 18% GST on rent
• Deposit tax and file returns
• Maintain lease agreements and documentation

b. Tenant (RCM Cases)

Must:

• Identify if landlord is unregistered
• Calculate GST on rent
• Pay tax under RCM in cash
• Issue self-invoice where needed
• Claim ITC if eligible
• Maintain proof of payment

Co-working operators often bundle:

• Desk space
• Electricity
• Internet
• Seating and administrative support

Under the new clarification:

• These are treated as commercial services, not mere renting
• GST under forward charge applies
• RCM does not apply to co-working service providers

This prevents misclassification and ensures consistent taxation.

The amendments reinforce that:

• Common Area Maintenance (CAM)
• Facility management fees
• Air conditioning charges
• Electricity reimbursements (when not metered separately)

are part of the value of commercial rental supply, and GST applies uniformly on the entire amount. This closes a long-standing gap where landlords split rent and CAM to avoid GST.

Businesses renting commercial spaces continue to enjoy:

• Full ITC on GST paid under forward charge or RCM
• ITC on ancillary charges related to renting
• ITC on renovation or fit-out services (subject to certain restrictions)

However, ITC is not allowed for personal consumption use or non-business activities.

a. Increased Transparency
Simplifies classification and tax liability in rental engagements.

b. Reduced Tax Avoidance
Ensures even unregistered landlords contribute to GST through tenant-based RCM.

c. Better Compliance
Tenants and landlords now clearly understand their responsibilities.

d. Higher Tax Revenue Without Litigation
The government collects tax without invasive enforcement measures.

Despite clear benefits, taxpayers may face certain challenges:

• Identifying landlord registration status
• Handling shared spaces and composite leasing contracts
• Understanding the shift from forward charge to RCM
• Reconciliation of ITC for tenants
• Higher administrative workload for businesses leasing multiple properties

However, these can be managed through proper contract structuring and documentation.

The amendments effective from 10 October 2024 substantially reshape GST compliance for commercial rentals by introducing selective RCM, refining property classification, lowering registration thresholds, and reinforcing valuation rules. These changes align with the government’s broader goal to plug revenue leakages, prevent misuse of property classifications, and promote a more accountable rental ecosystem. While both landlords and commercial tenants must adapt to the new compliance landscape, the long-term impact is positive: greater transparency, smoother enforcement, and a well-regulated commercial leasing industry.