Renting of immovable property
Central Government (excluding ministry of railways i.e. Indian railways), state Government, union territory or local authority.
The exclusion of Indian railways from the list of supplier was made through notification no 14/2023 dated 19th October, 2023.
A person registered under GST law.
a registered person
In addition to the general reverse charge entry for services provided by Government or local authority to business entities (Entry No. 5), a specific reverse charge entry - Entry No. 5A - was inserted to bring clarity and certainty in relation to renting of immovable property.
This entry was inserted via Notification No. 3/2018-Central Tax (Rate), dated 25th January 2018, and applies with effect from that date.
The term "immovable property" includes land and buildings. This entry covers all forms of commercial renting done by government authorities, such as:
- Leasing of land for industrial or commercial purposes,
- Renting of office space, godowns, or shops to private entities,
- Renting of community halls or auditoriums for business use.
It does not include residential renting to individuals for personal use, as that is covered under a separate exemption (see Notification No. 12/2017-CTR, Entry No. 12). However, with effect from 18th July, 2022 a separate entry no 5AA has been inserted in the RCM notification no 13/2017-CTR to provide for RCM on renting of residential dwellings. (Discussed separately in this chapter)
RCM under Entry 5A applies only if the recipient is registered under GST. If the recipient is unregistered, the government or local authority must discharge GST under forward charge.
The supplier (government or local authority) is not required to register solely for this supply if RCM applies, even if rental income exceeds the threshold.
RCM Applies :-
A municipal corporation rents out a shop in a market to M/s ABC Traders, a GST-registered business. Since the recipient is registered, RCM is applicable, and M/s ABC Traders must pay GST on the rent under reverse charge.
RCM Not Applicable :-
A panchayat leases out land to an individual not registered under GST. Here, RCM does not apply, and if the rental income of the panchayat exceeds the registration threshold, it must obtain GST registration and pay GST under forward charge.