Payment of tax under RCM - Lease of land

[Rohit K]

Hi Members,

I have a situation where a landlord has given a piece of land for lease to company for commercial purposes. The landlord has not obtained GST registration but the company is paying an amount of Rs. 30 lakh to the landlord per month.

In the present case, whether landlord has to obtain registriation or brewery has to pay GST under RCM?

As per notification 9/2024 CT(Rate) dated 08.10.2024 read with Notification 5/2017, GST on Service by way of renting of any property other than residential dwelling is to be paid by recipient of service.

Please clarify.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

As per the Notification No. referred to by yourself, the land provided on lease for commercial activities constitutes a supply of service. In case the supplier is unregistered and does not cross the threshold limit of registration, the lessee has to pay tax under RCM.

In your case, the lease value is 30 lakhs per month, so it crossed the registration limitation of Rs. 20 lakhs. Therefore, the landlord must register for GST and pay tax under the forward charge.

[Ryan Vaz]

In your case, the brewery/company (being the registered recipient) is liable to pay GST under RCM, provided:

1. The landlord is unregistered under GST, and
2. The leased property is commercial immovable property / land used for commercial purposes.

Therefore:

• The landlord is not required to charge GST, and
• Merely because rent exceeds Rs. 20 lakh or Rs. 40 lakh threshold does not automatically require the landlord to obtain GST registration, since tax is payable by recipient under notified RCM entry.

The brewery must discharge GST under RCM at the applicable rate (generally 18% for leasing/renting of commercial immovable property, subject to classification specifics).

[Amit Agrawal]

Till the time, the landlord is not registered under GST, the lessee (i.e. A registered person other than a person who has opted to pay tax under composition levy) is liable to pay GST under RCM against lease-charges in given situation.

For above position, the fact that "subject landlord has not taken registration under GST despite being liable to take such registration" is immaterial.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[Sadanand Bulbule]

It is worth to refer Notification No. 5/2017-Central Tax dated 19/06/2017 which provides exemption from obtaining registration for persons making supplies taxable under RCM. This is issued under Section 23[2] of the CGST Act, 2017.

Further under such peculier scenario, whether the said supplier has any other taxable business liable for regular registration is also important. If yes, it alters the entire situation mandated under the above notification for all purposes.
 

[YAGAY andSUN]

The transaction in question is a supply of service by way of leasing/renting of commercial immovable property/land and is taxable under GST. Pursuant to Notification No. 09/2024-CT (Rate) dated 08.10.2024 read with Notification No. 13/2017-CT (Rate), GST on renting of any property other than residential dwelling supplied by an unregistered person to a registered person is payable by the recipient under Reverse Charge Mechanism ("RCM").

Accordingly, where the landlord is unregistered and the lessee/company is a registered person, the liability to discharge GST shall fall upon the lessee under RCM. In such circumstances, the landlord is not required to collect GST from the lessee.

Further, Notification No. 5/2017-Central Tax dated 19.06.2017, issued under Section 23(2) of the CGST Act, exempts persons exclusively making supplies on which tax is payable by the recipient under RCM from obtaining GST registration. Therefore, merely because the aggregate lease rental exceeds the threshold limit prescribed under Section 22 of the CGST Act (Rs. 20 lakh/Rs. 40 lakhs, as applicable), registration may not become mandatory if the landlord is exclusively engaged in such supplies covered under notified RCM entries.

Hence, in the present case, the fact that lease rent is Rs. 30 lakh per month does not, by itself, mandate GST registration for the landlord, provided:

(i) the landlord remains unregistered,

(ii) the recipient is a registered person liable under RCM, and

(iii) the landlord is not engaged in any other taxable outward supplies requiring compulsory registration.

However, if the landlord is carrying on any other taxable business/activity attracting GST under forward charge, or otherwise becomes liable for compulsory registration under the CGST Act, the protection of Notification No. 5/2017 may not be available. In that event, the landlord would be required to obtain registration and discharge GST under forward charge in the normal course.

Therefore, subject to the above factual verification, GST liability in the present case would ordinarily be discharged by the brewery/company under RCM and not by the landlord.

[Shilpi Jain]

The liability under RCM arises if services are provided by unregistered persons. As per this, until the landlord is unregistered, the tenant will have to pay under RCM.

However, section 22 of CGST Act applies to landlord as per which he has to take registration. This is because once he crosses 20L, he is liable to be registered u/s 22 and non-compliance with this can lead to consequences for him.

Though, once the recipient is paying tax and the Govt is getting its share coz of this, its not much of a concern however, landlord will have to face the litigation process if initiated against him.

[Shilpi Jain]

So inform landlord (better in writing) to take registration and pay GST. Until he does that you continue to pay GST under RCM.

[KALLESHAMURTHY MURTHY K.N.]

Dear all Experts,

The expressions in Points No. 4 and 6 are to be viewed with the provisions of the CGST Act and relevant Notifications for more clarity, with reference to the opinions of other experts, to come to a proper conclusion on the issue. That is, whether the landlord is liable to register u/s 22 since the land owner has crossed the threshold limit or is categorised as an exempted person as per the notification issued u/s Sec. 23(2).

Whether the land owner is free from registration, though he has crossed the threshold limit of taxable supply of service, because the tax liability lies on the recipient of service, is payable tax under RCM as prescribed in the Notification No. 09/2024-CT (Rate) dated 08.10.2024.

In case of land lord is not liable to registration on the terms of the above notification, it will not be contradictory to the provisions of sec. 22 and from the point of Sec. 23.

The Notification No. 5/2017-Central Tax dated 19/06/2017 reads as under.

G.S.R. (E).- In exercise of the powers conferred by sub-section (2) of section 23 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government hereby specifies the persons who are only engaged in making supplies of taxable goods or services or both, the total tax on which is liable to be paid on reverse charge basis by the recipient of such goods or services or both under sub-section (3) of section 9 of the said Act as the category of persons exempted from obtaining registration under the aforesaid Act.

In the said Notification, it is mentioned as "as the category of persons exempted from obtaining registration under the aforesaid Act."

If the landlord is categorized as coming under the persons exempted from obtaining under the Act, he may not be registered even if he has engaged in other taxable supplies.

As per sec. 23(1) (b), the landlord is not categorized as an exempted person, but only the agriculturist engaged in the supply of produce out of the cultivation of land.

The learned experts may enlighten the actual meaning of the relevant sections and Notifications.

[Saurabh Goel]

With respect to the earlier responses, I would like to present a more nuanced position.

Critical distinction - who is an "unregistered person"?

Notification 13/2017 CT(Rate) as amended by Notification 9/2024 CT(Rate) dated 08.10.2024 prescribes RCM where the supplier is "any unregistered person." However, this must be read carefully. A person liable to register but not registered is technically unregistered - but he is not a person legitimately exempt from registration.

The landlord earns Rs. 30 lakh/month i.e. Rs. 3.6 crore/year, substantially crossing the Rs. 20 lakh threshold under Section 22(1). He is therefore legally obligated to register and pay tax under forward charge.Notification 5/2017 CT(Rate) exempts from registration only persons whose supplies are wholly covered under RCM - this was designed for persons otherwise not liable to register, not for those actively avoiding a pre-existing statutory obligation.

Practical risk for the company

If the company deposits tax under RCM and avails ITC, the position appears clean today. However, if the landlord later obtains registration and raises tax invoices under forward charge for past periods, the company risks double tax liability.

The company should therefore:

1. Formally communicate to the landlord in writing that given his turnover, he is legally required to register and pay GST under forward charge;
2. Incorporate a clause in the lease agreement stating that rent of Rs. 30 lakh is inclusive of GST and no separate GST demand shall be raised by the landlord, since the company is already discharging tax under RCM; and
3. Maintain all documentation - self-invoices, RCM payment challans, ITC records - to defend its position in any future proceeding.

In summary - the landlord is not merely unregistered; he is a person liable to be registered who is avoiding compliance. The company should protect itself contractually against any future forward charge demand.

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AI Summary

Reverse charge on commercial lease rentals depends on unregistered status and registration liability under GST rules. Leasing of land or commercial immovable property to a registered recipient is discussed as a taxable supply under GST, with the question being whether the recipient must discharge tax under reverse charge mechanism when the landlord is not registered. The discussion refers to the notified entry covering renting of property other than a residential dwelling supplied by an unregistered person to a registered person, and the resulting liability of the lessee to pay GST where the supplier has not obtained registration.