RCM applicability on renting of residential property

[Sooraj B]

A company is registered in the State of Kerala . It takes on rent a flat in Mumbai, which is used by its directors who visit Mumbai frequently for meetings . Is the Company liable to pay GST under RCM in terms of Serial number 5AA of Notification 13/2017-CTR?. In this case, the location of the supplier and the place of supply are in Maharashtra ; accordingly the tax applicable will be CGST and SGST of Maharashtra . There is no way, the Company can pay CGST and SGST of Maharashtra, as it is not registered in Maharashtra. So does the levy fail here ? Or should the Company get itself registered in Maharashtra u/s 24 of the CGST Act, as RCM is applicable?. Kindly share your views.

[Ryan Vaz]

Applicable Law / Notification / Circular

1. Section 9(3), CGST Act, 2017 – Reverse Charge Mechanism (RCM).
2. Serial No. 5AA, Notification No. 13/2017-CT (Rate) dated 28-06-2017 – RCM on renting of residential dwelling to a registered person.
3. Section 12(3)(a), IGST Act, 2017 – Place of supply for services directly related to immovable property.
4. Section 2(15) & 2(71), CGST Act – Definitions of “location of supplier” and “location of recipient”.
5. Section 24, CGST Act, 2017 – Compulsory registration under certain cases.
6. CBIC Circular No. 210/4/2024-GST dated 26-06-2024 – Clarification on RCM on renting of residential dwelling.

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Short Practical Answer

The levy does NOT fail.

The Kerala-registered company is not required to take registration in Maharashtra merely to discharge RCM on rent of a Mumbai flat. The GST payable under RCM must be discharged from its existing Kerala registration, even though the tax is CGST + SGST of Maharashtra.

[KALLESHAMURTHY MURTHY K.N.]

Sir, 

The Kerala Registered Company has taken a residential flat on Rent in Maharashtra. The Government, with the introduction of Notification No. 05/2022 (Central Tax - Rate) dated 13th July 2022, inserted by including the Entry 5AA under the Reverse charge mechanism RCM by amending Notification 13/2017- Central Tax (Rate), which was levied on the renting of residential property by any person to a registered person. (Any person means he may either be a registered or unregistered person, but the recipient of service is liable to pay tax under RCM.

The supply of Service is in Maharashtra; hence, SGST & CGST are applicable. But a Kerala Registered person cannot discharge SGST and CGST in Kerala under RCM. The nature of supply does not attract IGST.

As per Sec. 24 (1)(iii) of the CGST Act, persons who are required to pay tax under RCM have to take registration, which means the Company has to take Registration in Maharashtra.  It cannot violate the provisions.

[Sadanand Bulbule]

Plz refer Section 12[3] of the IGST Act to derive the meaning of place of supply of service which naturally attracts levy of CGST + SGST. Therefore technically registration under Section 24 of the MGST Act is necessary followed  by payment of tax under RCM.  Kerala state has no locus to demand tax under RCM on such transactions.

[Ryan Vaz]

Sorry my mistake 

Yes, the company must take GST registration in Maharashtra.

A Kerala GSTIN cannot legally discharge Maharashtra CGST & SGST under RCM. Since the company is liable to pay tax under RCM and the supply is intra-State in Maharashtra, separate registration in Maharashtra is mandatory.

[KASTURI SETHI]

Separate registration is mandatory in Maharashtra.

Registration is State specific. A person registered in one State is UNREGISTERED person outside ones State. Here the person registered in Kerala State is unregistered person in Maharashtra State. Under RCM the recipient is deemed supplier and is required to perform all legal formalities required under Section 9(3)as supplier of service for payment of GST.

Sh. Kalleshamurthy Murthy, Sir covered all aspects leaving no doubt at all.

[Sooraj B]

Thank you dear all for your valuable insights!!  Just adding one more dimension to the view that registration should be taken in the State of Maharashtra. RCM is applicable only if the services of renting is provided to a registered person. so if a person is not registered in Maharashtra, will the provisions of Maharashtra CGST Act be applicable?

[KALLESHAMURTHY MURTHY K.N.]

Sir,

First, I thank Sri Kasturi Sethi Ji for agreeing with my views on the issue.

For further query of Sri Sooraj B Sir, I would like to say that Sri Kasturi Sethi Ji has clarified about the unregistered person in Maharashtra. Any unregistered person in India who is deemed to be required to register under the CGST Act applies to every Citizen in India.  An unregistered person residing in Kerala, Delhi, or Maharashtra must take registration, as per the provisions explained by all other Experts here.  That means, if a person who is not registered in Maharashtra, the provisions of the Maharashtra CGST Act apply to the taxable transaction carried out by any unregistered person who is to take registration mandatorily. Hope that the doubt is cleared.

[Sooraj B]

Dear Sirs,

Thank you so much for taking the time out to reply to my query. I am still not convinced about the liability to register. A person liable to pay GST under RCM is required to register mandatorily, in terms of Section 24 of the CGST Act. However in this case, the liability to pay GST under RCM arises only if the recipient of service is registered (serial number 5AA of Notification 13/2017-CTR) In this case, the taxpayer is not registered in Maharashtra and therefore RCM liability itself does not arise. So once RCM liability does not arise, does the liability to register arise? This is what I respectfully submit .. Thank you once again for sharing your views. Contrary views are welcome.

[KALLESHAMURTHY MURTHY K.N.]

Sir, 

 The law is very clear. 

 The Legislative intent is to bring all the transactions into account where the tax liability is present. Accordingly, the tax payable under RCM has to be discharged by following the procedures and conditions laid down in the Act. Just because of not being registered in Maharashtra, being liable to be registered will be a violation of law and liable for interest and penalty on identified by the tax authorities. So, he has to take registration and cannot escape from tax liability mere on the reason not registered. 

[KASTURI SETHI]

Dear Sh.Sooraj B Ji,

                                    Sir, Regarding applicability of RCM my views are as under:-

 

0[5AA

Service by way of renting of residential dwelling to a registered person.

Any person

Any registered person.]

 

Supplier :                        ANY    person 

Recipient of service :     ANY registered person   

                                     Focus on the meaning, essence and sense of the words, "ANY",  "PERSON"  and  "REGISTERED PERSON"               

                                   Legal dictionary meaning of the word, "ANY"  is  One or some or all or  every. It is based on the judgement of Hon"ble Supreme Court. 

                                   Your client is registered in Kerala State (but unregistered in Maharashtra State)  and thus covered under the category/term of   "Any registered person". Hence RCM is applicable. There is no legal force in your contention that RCM is not applicable. Thus liability arises under RCM. There is not an iota of doubt about applicability of RCM.

                                 There should be no doubt about  "place of supply of service" as already expressed above by the  experts.

Dear Sh.Sooraj B Ji,

                                    Sir, Since you intend to welcome contrary views, so I would like to opine as under :-

 

0[5AA

Service by way of renting of residential dwelling to a registered person.

Any person

Any registered person.]

 

Supplier :                        ANY    person 

Recipient of service :     ANY registered person   

                                     Focus on the meaning, essence and sense of the words, "ANY",  "PERSON"  and  "REGISTERED PERSON"               

                                   Legal dictionary meaning of the word, "ANY"  is  One or some or all or  every. It is based on the judgement of Hon"ble Supreme Court. 

                                   Your client is registered in Kerala State (but unregistered in Maharashtra State)  and thus covered under the category/term of   "Any registered person". Hence RCM is applicable. There is no legal force in your contention that RCM is not applicable. Thus liability arises under RCM. There is not an iota of doubt about applicability of RCM.

                                 There should be no doubt about  "place of supply of service" as already expressed above by the  experts.

[KASTURI SETHI]

                                            To take a plea that the tax payer is not registered is the weakest  form of defence.

                                         

AI Summary

Reverse-charge GST on renting a residential flat to a registered person, requiring state registration to pay CGST/SGST. Serial No. 5AA of Notification 13/2017-CT (Rate), read with section 9(3) of the CGST Act, prescribes reverse charge on services by way of renting of a residential dwelling provided to any registered person, making the recipient liable to pay GST. Section 12(3)(a) of the IGST Act fixes place of supply as the location of the immovable property; where the flat is in Maharashtra and the supplier is also in Maharashtra, the supply is treated as intra-State and attracts Maharashtra CGST and Maharashtra SGST. Section 24 of the CGST Act is treated as mandating State-wise registration for persons liable to pay tax under reverse charge, so the recipient must obtain Maharashtra registration and discharge RCM through that registration.