Are you currently living in a rented house?

If so,

it's crucial for you to be aware of the latest GST updates.

Starting from July 18th, 2022, the government has implemented new GST regulations specifically for the "Renting of Residential Property." According to the notifications outlined in 05/2022 (Central Tax Rate) on July 13th, 2022, it is now taxable to provide the service of renting a residential dwelling to a registered person.

However, it's important to understand that this tax will not be applied in the traditional forward charge system. Instead, it will be implemented based on the Reverse Charge Mechanism (RCM).

What is Reverse charge Mechanism (RCM)?

Reverse Charge Mechanism (RCM) is a concept in taxation where the liability to pay taxes on a particular transaction is shifted from the supplier of goods or services to the recipient or buyer. In a traditional forward charge system, the supplier collects the tax from the buyer and remits it to the government. However, under the RCM, the recipient of the goods or services is responsible for paying the tax directly to the government instead of the supplier.

RCM is typically applied in specific scenarios, such as when services are availed from an unregistered dealer or in certain specified goods or services as notified by the government. The purpose of RCM is to ensure that tax compliance is maintained even in cases where the supplier may not be registered or where tax evasion risks exist.

In the context of the GST updates mentioned earlier, the renting of residential property to a registered person is subject to tax under the Reverse Charge Mechanism, which means that the recipient of the rental service is responsible for paying the applicable GST directly to the government.

Through notifications 05/2022 (Central Tax Rate) dated 13 July 2022, the following entries have been newly inserted in the list of services that attract GST on RCM basis (Original Notification 13/2017)