CBIC Eliminates 18% GST on Rent for Small Taxpayers

22 Jan 2025 CW Team

In a relief for small taxpayers under the composition scheme, the Central Board of Indirect Taxes and Customs (CBIC) has eliminated the 18% GST on rent when leasing premises from property owners not registered under GST.

This decision, applied retrospectively from October 10, 2024, is set to significantly benefit restaurants, small traders, and service providers in the sector.

Previously, tenants registered under GST had to pay 18% GST through the reverse charge mechanism (RCM) when renting from unregistered property owners. Industry experts criticized the move, highlighting the strain it placed on working capital for composition scheme participants, whose turnover is below Rs 15 million.

Chartered accountant Karim Lakhani explained, “The rule created huge working capital issues for tenants under the composition scheme. Their tax liability is 1-6% based on their business type, and the 18% GST on RCM created issues as they couldn’t claim input tax credit. Now, CBIC’s move will significantly help small businesses.”

The composition scheme, which simplifies compliance for small taxpayers, offers lower tax rates ranging from 1% to 6% based on the type of business, but does not allow input tax credit (ITC) claims. The removal of the RCM liability addresses a long-standing concern among small-scale enterprises.

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