GST Tip of the Day: Renting Commercial Premises from an Unregistered Landlord? You Now Pay GST Under Reverse Charge

Today's tip

If your business is GST-registered and you rent your shop, office, or godown from a landlord who is not registered under GST, the tax burden has quietly shifted to you. Since 10 October 2024, renting of commercial (non-residential) immovable property by an unregistered person to a registered person falls under the reverse charge mechanism (RCM). That means you — the tenant — must calculate, pay, and report the GST yourself.

Many small businesses still treat rent paid to an unregistered landlord as a simple expense with no GST angle. That assumption is now outdated and can lead to short-payment of tax and interest.

What actually changed

Earlier, GST on commercial rent was the landlord's problem — but only if the landlord was registered and charged it in the invoice. If your landlord was a small individual below the registration threshold, no GST was collected and nothing was due.

The amendment plugs that gap. Now the supply of commercial property on rent from an unregistered landlord to a registered tenant is taxable under reverse charge. The responsibility to discharge the tax sits with the tenant, regardless of the landlord's registration status.

Note the two conditions that must both be true:

• The property is commercial — not a residential dwelling.
• The landlord is unregistered and the tenant is registered.

If the landlord is registered, they continue to charge GST in the normal forward-charge way and nothing changes for you.

What you need to do

When RCM applies, the tenant has a clear set of compliance steps:

1. Raise a self-invoice for the rent, since your landlord won't issue a GST invoice. This is your document for the transaction.
2. Pay the GST in cash — reverse charge liability cannot be set off against your existing input tax credit (ITC). It has to go through the electronic cash ledger.
3. Report it in GSTR-3B under the reverse charge (inward supplies liable to RCM) section, and pay the tax for that month.
4. Claim the ITC in the following step, provided the premises are used for your business and the credit is not otherwise blocked. So for most businesses, the net cost is the cash-flow timing, not the tax itself.

The applicable rate on renting of commercial property is 18% — either IGST, or CGST plus SGST, depending on whether the supply is inter-state or intra-state.

A quick example

Suppose your monthly shop rent is ₹50,000 and your landlord is an individual with no GST registration. Under RCM you now pay ₹9,000 (18%) as GST in cash through your cash ledger, raise a self-invoice, report it in GSTR-3B, and then claim ₹9,000 as ITC if the shop is used for taxable business. The tax washes out for most, but you must still route it correctly — skipping the payment is non-compliance, even if your eventual ITC would have matched it.

Why this matters

The risk here is silent. There is no landlord invoice to remind you, no automatic entry in your GSTR-2B, and no portal nudge. The liability arises purely from the nature of the transaction. If you ignore it, a future audit or scrutiny can raise a demand for the unpaid reverse-charge tax along with interest, and in some cases you may lose the ability to claim the corresponding ITC cleanly.

Action for today

Pull out your rent agreement and check one thing: is your landlord GST-registered? If yes, confirm they are charging GST in the invoice. If no, and the property is commercial, set up a monthly routine to raise a self-invoice, pay the reverse-charge GST in cash, report it in GSTR-3B, and claim the credit. Build it into your month-end checklist so it never slips.