Eligibility to ITC for tax paid under RCM on rented commercial property

[KALLESHAMURTHY MURTHY K.N.]

Dear Sirs,

Mr X, a registered person, used a commercial property for exempted supplies and paid rent to an unregistered person (Land Lord). Whether X is liable to pay tax under RCM and can avail of ITC paid under RCM as per Notification 9/2024?

[Shilpi Jain]

If you are using the premises to provide exempted service, there is no question of eligibility of credit.

[KASTURI SETHI]

Sh.Kalleshamurthy Murthy Ji,

Sir, The query needs more elaboration please.

[KALLESHAMURTHY MURTHY K.N.]

Sri Kasturi Sethi Ji,

Sir, 

X is a registered person and used a commercial building of a landlord who is an unregistered person.  X is liable to pay tax under RCM. But X is in the business of exempted supplies. Can X avail of ITC under RCM and how can he utilise ITC?

Can a dealer in the business of exempted supply avail ITC under RCM?

[Tarun Agarwalla]

Sir

eligibility to avail ITC is tax payer does not differentiate the ITC wether is paid under RCM or taken through tax invoice issued by its supplier. there fore any taxes paid under RCM stands at equal footing as that of other ITC. 

as in your case you were providing exempted supplies. nothing is available as eligible credit

AI Summary

Input tax credit on reverse charge payments is unavailable where the taxpayer makes exempt supplies. Tax paid under the Reverse Charge Mechanism is treated on the same footing as tax paid under a supplier's invoice for ITC purposes, but eligibility depends on the nature of the recipient's supplies; where the premises are used to make exempt supplies, Input Tax Credit is not available and cannot be utilised for such exempt-output activity.