Ahmedabad: In a crucial update for small taxpayers participating in the composition scheme, the Central Board of Indirect Taxes and Customs (CBIC) has abolished the 18% GST on rental payments made to property owners who are not registered under GST. This move is anticipated to provide significant relief to numerous restaurants and service providers within the sector.
Previously, the GST department had introduced fresh regulations concerning GST liabilities for leased commercial properties, set to take effect on October 10, 2024. These regulations mandated that tenants registered under GST must pay 18% GST through the reverse charge mechanism (RCM) when leasing from unregistered owners. Industry specialists had raised concerns that those under the composition scheme, especially in the restaurant industry, would face working capital challenges due to the necessity of paying 18% GST while being unable to claim input tax credit (ITC).
Chartered accountant Karim Lakhani voiced, “The regulation posed significant working capital challenges for tenants enrolled in the composition scheme. Many have a turnover of less than Rs 1.50 crore, with their tax liability ranging from 1-6% depending on their business type. The application of 18% GST under RCM severely affected small traders, manufacturers, and restaurants, given that they can’t reclaim the GST they have paid. With the CBIC’s latest announcement, composition scheme participants leasing from unregistered landlords are exempt from paying GST under RCM. This decision will considerably aid small businesses.” Lakhani further highlighted that the CBIC’s notification is effective retroactively from October 10, 2024.