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Issue ID : 119615
- 0 -

GST RCM on rent-applicability in the case of property taken on lease

Date 18 Feb 2025
Replies8 Answers
Views 5386 Views
Asked By

One of the clients- a dealer registered under GST- is running his business in a shop taken on lease for 8 years by paying Rs 8 lakhs as the lease amount. As per the terms of lease, this amount will be refunded by the Lessor after the lease period.

Whether GST RCM on rent is applicable on this case? If yes, how to calculate monthly rent / RCM?

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Replied on Feb 18, 2025
1.

1. GST on Refundable Security Deposit

As per Section 2(31) of the CGST Act, 2017, a security deposit is not considered as consideration unless it is adjusted against rent or forfeited.

  • If fully refundable and does not influence rent → No GST applicable.
  • If adjusted towards rent → GST at 18% applies on adjusted amount.

2. Notional Interest on Security Deposit

3. RCM Applicability on Rent

  • If the lessor is registered under GST: The lessor will charge 18% GST on rent.
  • If the lessor is unregistered: The lessee must pay GST under RCM @18% on rent.
  • RCM does not apply to refundable deposits unless adjusted against rent.

Suggestions & Compliance Measures:

Clearly state in the lease agreement that the deposit is refundable and does not affect rent.
If the deposit impacts rent, compute notional interest and include it in taxable value.
Pay GST only on rent, not on the deposit, unless adjusted or forfeited.

The applicability of GST should be reviewed on a case-to-case basis considering the lease terms and judicial precedents. 🚀

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Replied on Feb 18, 2025
2.

Dear Sir, Thanks for the reply.

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Replied on Feb 18, 2025
3.

Such arrangement is called as 'Pagdi' system in Maharashtra. Also called as heavy deposit rental home. Since, it is not rent as such and only a deposit refundable on termination of contract, GST is not applicable on lease amount.

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Replied on Feb 19, 2025
4.

Beautifully clarified Sir

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Replied on Feb 19, 2025
5.

The question posted started when reading an explanation of Notification No. 16/2018-Integrated Tax (Rate) wherein it was stated that “renting of immovable property” means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property. 

That is to say leasing also comes in the ambit of the definition of renting of immovable property.

Please throw more light on this.

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Replied on Feb 20, 2025
6.

Leasing and renting are almost synonymous.

In case there is taxability, valuation has to be done as per rule 27, i.e. adopting open market value for the rent. Do not consider notional interest as the taxable value.

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Replied on Feb 20, 2025
7.

Thank you Madam.

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Replied on Apr 8, 2025
8.

Dear sir,

Very well analysis by  RAHUL MODI

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