Published 26 Jul 2025. GST rules change often; check the latest position or ask us before acting on it.
Understanding the GST Council's proposal and its impact on commercial property rentals
At its 54th meeting on 9 September 2024, the GST Council proposed a new mechanism for applying GST to the renting of commercial property. It introduces the Reverse Charge Mechanism (RCM) when an unregistered person rents commercial property to a registered person.
This shifts the responsibility of paying GST from the service provider to the recipient in certain transactions. Here are the key aspects and how they affect each stakeholder.
The Reverse Charge Mechanism explained
Normally, GST is charged and collected by the supplier. Under RCM, the responsibility of paying the tax moves to the recipient.
For commercial property rentals, RCM applies when an unregistered landlord rents out commercial property to a registered tenant. The tenant, being registered, pays GST on behalf of the unregistered landlord.
The objective is greater compliance, simpler collection from unregistered persons, and a more streamlined GST system.
Key implications
1. More compliance for registered tenants: Tenants registered under GST must account for and pay GST on commercial property rented from unregistered landlords. They will need to file the necessary returns and claim input tax credit for GST paid under RCM.
2. Impact on unregistered landlords: Landlords who are not registered do not need to charge or collect GST. They may, however, see tenants renegotiate lease terms to reflect the additional tax burden.
3. Claiming input tax credit: Registered tenants paying GST under RCM can claim input tax credit on the amount paid, subject to the usual conditions. This offsets the cost against their output tax liability.
4. Greater transparency: The shift keeps commercial rentals from escaping the tax net because a landlord is unregistered, which widens the GST base.
What's next?
Businesses renting or leasing commercial property should prepare: review lease agreements, consider the cost implications, and set up systems to manage RCM payments and input tax credit claims efficiently.
Conclusion
Applying RCM to commercial property rentals is a significant development. It moves the tax payment onto registered tenants while simplifying compliance for unregistered landlords, as part of a wider strategy to bring more transactions into the tax net.
PS: If you rent commercial property, now is the time to review your agreements and make sure you are prepared.