[Opinion] Reverse Charge Mechanism (RCM) on Renting of “Immovable Property” or “Any Property” Clarified

Prateek Mitruka – [2024] 167 taxmann.com 631 (Article)

Introduction

In the latest GST updates, an important clarification regarding the Reverse Charge Mechanism (RCM) has been issued. This clarification addresses confusion that arose after Notification No. 09/2024-Central Tax (Rate) dated October 08, 2024, introducing new entry under the RCM. Businesses were facing challenges due to unclear interpretation regarding the renting of properties, both movable and immovable. This article examines the initial notification, the confusion it caused, and the corrective clarification that followed.

The Initial Notification and Its Impact

The Notification No. 09/2024-Central Tax (Rate), introduced the provision that if a registered person receives “renting of any property other than residential dwelling” services from an unregistered person, RCM would apply. The notification’s language indicated that reverse charge would be applicable for all kinds of properties except residential dwellings.

The key issue was the broad term “any property” used in the notification. As a result, there was a wide interpretation of the term, which included both movable and immovable properties. Businesses that had rented machinery or other movable assets from unregistered suppliers were now unsure whether they needed to pay GST under the reverse charge mechanism.

For instance, businesses that rented machinery or equipment from unregistered suppliers found themselves potentially liable for GST under the RCM, a situation that was not the intention behind the provision. This broad interpretation created significant compliance issues for registered entities.

Confusion Caused by “Any Property”

The use of the phrase “any property” led to confusion. According to the initial notification, the term seemed to cover all types of property, including machinery, equipment, and other movable assets. This was not the intended scope, as RCM here meant to apply to immovable property, specifically commercial. The confusion arose because the notification did not explicitly differentiate between movable and immovable property, leading businesses to believe that even the renting of movable property could attract RCM.

For example, if a registered business rented machinery from an unregistered supplier, they assumed, based on the notification’s wording, that they were required to apply RCM and pay the tax. This resulted in businesses facing uncertainty and the prospect of non-compliance or unnecessary payment of GST.

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