Reverse Charge Mechanism Now Applies to Commercial Property Rentals

At its 54th meeting on September 9 in New Delhi, the Goods and Services Tax (GST) Council clarified the tax treatment for preferential location charges (PLC) and introduced the Reverse Charge Mechanism (RCM) for renting commercial property from unregistered to registered persons. This measure aims to prevent revenue leakage by shifting the responsibility for GST payments from landlords to tenants for commercial rental services.

Revenue Secretary Sanjay Malhotra stated, ‘Renting of commercial properties has been brought under the reverse charge mechanism.’ This decision will increase compliance for registered taxpayers, who must now calculate GST liability for all their leased business premises.

Additionally, the Council clarified that PLC, paid along with property construction costs, is part of a composite supply and should be taxed at the same rate as construction services. Residential construction is subject to 5% GST, while commercial construction is taxed at 12%. This clarification resolves previous ambiguities surrounding PLC taxation, ensuring that it is now treated the same as construction services, alleviating concerns for builders.

Vakilsearch offers expert legal and tax advisory services to help businesses comply with the latest GST Council decisions, including the Reverse Charge Mechanism (RCM) for renting commercial property and the tax treatment of Preferential Location Charges (PLC). Our team ensures you understand your GST obligations, from accurately calculating liabilities on commercial leases to managing tax on property construction costs. With Vakilsearch, businesses can navigate these changes smoothly, ensuring compliance and avoiding penalties. Stay ahead of GST regulations with Vakilsearch’s tailored legal and tax solutions.

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Akash G Varadaraj

Content Writer at Vakilsearch

I'm Akash. G. Varadaraj, an official content writer at Vakilsearch with over four years of experience. I'm here to simplify complex legal concepts into easily accessible articles that even a layman can understand. As a regular contributor to this news portal, I aim to keep you informed in the dynamic world of law, compliance, taxation, and much more. I ensure that you get to know our Vakilsearch expert's take on every piece of news, how it can help, and what you should do.

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