The GST Council, in its 55th meeting held on December 21, 2024, announced a significant change to the Reverse Charge Mechanism (RCM) rules. Businesses and professionals registered under the composition scheme are now exempt from paying GST under RCM for renting commercial property.
Background
Notification No. 09/2024-Central Tax (Rate), effective October 10, 2024, required GST payment under RCM for renting commercial property from unregistered landlords. This posed compliance challenges for composition taxpayers, regardless of their size. While many composition taxpayers are small businesses, this scheme also includes larger businesses and professionals who opt for it due to its simplicity. Recognizing these challenges, the GST Council decided to exempt all composition taxpayers from this RCM provision.
Key Decisions by the GST Council
RCM Exemption
Businesses and professionals under the composition scheme will no longer pay GST under RCM for renting commercial or immovable property.Regularization of Past Transactions
Transactions from October 10, 2024, until the date of the revised notification will be regularized. No penalties will apply for unpaid GST under RCM during this period.
Example of Impact
Consider Dr. Arjun, a medical professional registered under the composition scheme. In November 2024, he rented a clinic from an unregistered landlord at ₹50,000 per month. Under previous rules, Dr. Arjun was liable to pay GST under RCM on this rent.
With the Council's new decision, Dr. Arjun is no longer required to discharge GST under RCM for this rental. Additionally, if he did not pay GST during the interim period, it will be regularized without penalties.
Benefits for Composition Taxpayers
- Simplified Compliance: Reduces administrative burden and eliminates the need for RCM calculations.
- Improved Cash Flow: Relieves businesses and professionals from the financial strain of upfront GST payments.
- Clarity and Certainty: Resolves past non-compliance issues, ensuring a smooth transition to the updated rules.
Conclusion
This decision by the GST Council simplifies compliance for businesses and professionals under the composition scheme, whether small or large. It ensures fairness by addressing past and present compliance challenges while reducing financial and administrative burdens.
Composition taxpayers should monitor the release of the revised notification to align their practices with the updated provisions. This move underscores the GST Council’s commitment to a balanced and business-friendly tax environment.
