Expert views on the renting of commercial properties brought under the reverse charge mechanism

The Goods and Services Tax (GST) Council at its 54th meeting in New Delhi on September 9 decided to bring renting of commercial property by an unregistered person to a registered person under Reverse Charge Mechanism (RCM), in order to prevent revenue leakage.

Shrinivas Rao, FRICS, CEO, Vestian said, “Earlier, Goods and Services Tax (GST) was charged under Forward Charge Mechanism (FCM) only while renting a commercial property by a GST unregistered person (landlord) to a GST registered person (tenant). This caused significant revenue leakage for the government as the Reverse Charge Mechanism (RCM) was not applied. To stop the revenue leakage and widen the purview, the GST Council included this under RCM which may increase compliance for GST-registered persons (tenants).”
Rao further added, “Moreover, the government has clarified theGST liability on location charges or Preferential Location Charges (PLC) on residential/commercial/industrial complexes and bundled them under construction services reducing the tax liability from 18% to 5%/12%. This is likely to reduce friction between developers and tenants and ensure transparency.”