A common situation in practice: a landlord leases commercial property to a registered company at Rs. 30 lakh per month. The landlord has no GST registration. Who pays GST — and is that really the end of the story? The answer is more layered than most practitioners assume.
With effect from 10th October 2024, the Government inserted Entry 5AB in the RCM notification (Notification 13/2017 CT(Rate) as amended by Notification 9/2024 CT(Rate)), which reads as follows:
"Service by way of renting of any immovable property other than residential dwelling" — Supplier: Any unregistered person | Recipient: Any registered person.
This means that where an unregistered person rents out non-residential immovable property to a GST-registered recipient, the recipient is liable to pay GST under Reverse Charge Mechanism (RCM) under Section 9(3) of the CGST Act, 2017.
Notification 5/2017 CT(Rate) issued under Section 23(2) of the CGST Act exempts from registration any person who makes supplies wholly covered under RCM. This means the unregistered landlord has no obligation to obtain GST registration, regardless of his rental income.
Here is where the standard analysis stops — and where the real issue begins.
In the example above, the landlord earns Rs. 30 lakh per month i.e. Rs. 3.6 crore per annum from this single lease. He has crossed the GST registration threshold of Rs. 20 lakh under Section 22(1) of the CGST Act by a factor of 18. He is not a small landlord below the threshold. He is a high-value commercial landlord with a clear statutory obligation to register and pay tax under forward charge.
Notification 5/2017 was designed to protect small suppliers who happen to make supplies under RCM and therefore have no reason to enter the GST system. It was never intended to shield a Rs. 3.6 crore landlord from his registration obligations.
If the company pays GST under RCM and claims ITC, the position looks clean today. But consider this scenario:
This is not a theoretical risk. It is a live exposure in every commercial lease arrangement where the landlord is above the threshold and unregistered.
Inform the landlord in writing that his rental income substantially exceeds the GST registration threshold; that he is legally obligated to register under Section 22(1) of the CGST Act; and that the company is currently discharging tax under RCM only because of his non-compliance.
Incorporate a specific clause clarifying that the monthly rent of Rs. 30 lakh is inclusive of GST liability, that the company is discharging GST under RCM, and that no separate GST demand shall be raised by the landlord on the company at any future date under forward charge.
Ensure self-invoices under Section 31(3)(f) are issued each month, RCM is paid through GSTR-3B, and ITC is claimed correctly. This documentation will be critical in defending any future departmental inquiry.
Notification 9/2024 was a pragmatic solution to a real problem — massive revenue leakage from unregistered landlords with registered tenants. The Government's intent was sound: if we cannot force every landlord to register, at least ensure the tax reaches the exchequer through the registered recipient.
But the notification draws no distinction based on the supplier's turnover. A landlord earning Rs. 5 lakh per year and a landlord earning Rs. 3.6 crore per year are treated identically. Both are exempt from registration. Both have zero GST compliance obligations. This is a structural gap.
The ideal legislative design would cap the registration exemption at the threshold under Section 22 — small landlords get relief, high-value commercial landlords remain in the compliance net.
Until CBIC issues a clarificatory circular or the GST Council revisits this notification, the anomaly will remain. The law is clear. The policy design is debatable.
Disclaimer: This article is intended for general informational purposes only and does not constitute legal or tax advice. Readers are advised to consult a qualified GST practitioner for advice specific to their facts and circumstances.