If you are a small business owner under the GST Composition Scheme, you might have been confused recently about paying GST on your shop or office rent.
There was a lot of talk in late 2024 about a new rule requiring you to pay tax on rent under the "Reverse Charge Mechanism" (RCM).
Here is the simple breakdown of what has changed and what you need to do.
The Confusion: What Happened?
In October 2024, a new rule came out stating that if a registered business rents a commercial property from an unregistered person (a landlord without a GST number), the business must pay the GST on that rent directly to the government.
This caused panic for Composition Dealers. Since Composition Dealers cannot claim Input Tax Credit (ITC), this RCM payment was becoming a direct extra cost (18%) for them.
The Relief: The New Rule (Jan 2025)
Acknowledging the burden on small taxpayers, the government issued a new notification (Notification No. 07/2025).
The Bottom Line: If you are a Composition Dealer renting a commercial property (shop, office, godown) from an Unregistered Landlord, you are exempt from paying RCM.
Your Rent Tax Scenarios: A Quick Guide
Here is exactly how you should handle your rent payments now:
| Scenario | Landlord Status | What You Need To Do |
|---|---|---|
| 1 | Landlord HAS a GST Number | The landlord will add 18% GST to your rent bill. You pay the bill. You do nothing else. (Standard process). |
| 2 | Landlord has NO GST Number | You pay NO GST. You do not need to pay RCM to the government. You simply pay your agreed rent to the landlord. |
What about the last few months (Oct 2024 – Jan 2025)?
You might be wondering, "What if I didn't pay the tax during those confusing months between October and January?"
Don't worry. The government has decided to regularize that period on an "as is where is" basis.
- If you didn't pay RCM: You are safe. The government will not ask you to pay it now.
- If you did pay RCM: Unfortunately, you cannot get a refund, but at least you are compliant.
Key Takeaways for Composition Dealers
- Stop Calculating RCM: If your landlord is unregistered, stop calculating 18% RCM on your rent expenses.
- No ITC Available: Remember, as a Composition Dealer, you cannot claim credit for any GST paid on rent (whether paid to the landlord or via RCM). It is a cost to your business.
- Residential vs. Commercial: This relief is specifically for commercial rentals. If you are renting a residential house for business use (like a guest house), check with your CA.
Disclaimer: Tax laws can change. Always consult your Chartered Accountant (CA) before filing your returns to ensure this applies to your specific business structure.
