RCM on rent of commercial property unregistered landlord

Before October 2024, renting commercial office spaces, retail showrooms, or industrial godowns from unregistered landlords did not attract reverse charge under GST. Businesses that leased commercial premises from individual property owners who fell below the mandatory registration threshold operated without any GST liability on monthly rent. That legal position changed following the 54th GST Council recommendations, shifting tax compliance entirely to registered business tenants.

The statutory change: Entry 5AB of Notification No. 13/2017-Central Tax (Rate)

Under powers conferred by Section 9(3) of the CGST Act, the central government issued Notification No. 09/2024-Central Tax (Rate) on 8 October 2024, with enforcement starting on 10 October 2024. This notification amended parent Notification No. 13/2017-Central Tax (Rate) by inserting Entry 5AB.

Entry 5AB establishes three specific elements that trigger reverse charge:

• Description of service: Service by way of renting of any property other than residential dwelling.
• Supplier of service: Any unregistered person.
• Recipient of service: Any registered person.

“5AB. Service by way of renting of any property other than residential dwelling. Supplier: Any unregistered person. Recipient: Any registered person.” Notification No. 09/2024-Central Tax (Rate) inserting Entry 5AB, effective 10 October 2024

This entry covers all commercial premises, including retail shops, corporate branch offices, warehouses, manufacturing sheds, open commercial land, and factory spaces. When an unregistered individual, Hindu Undivided Family, or partnership leases commercial real estate to a registered GST taxpayer, the registered tenant becomes statutory debtor for the tax.

Entry 5AB vs Entry 5AA: clear distinctions by property category

Taxpayers often confuse the older residential rental rule with the commercial rental provision. In July 2022, Entry 5AA introduced reverse charge on renting of residential dwellings to registered persons. Understanding the exact statutory scope prevents misclassification:

The distinction regarding registered landlords is fundamental. Under Entry 5AA for residential dwellings, reverse charge applies regardless of whether the landlord holds a GST registration. Under Entry 5AB for commercial property, reverse charge applies only if the landlord is unregistered. When a commercial landlord is registered under GST, the landlord charges 18% GST directly on the tax invoice under regular forward charge.

Exclusions and boundaries: when reverse charge does not apply

To confirm whether your business must pay RCM on commercial rent, review these statutory boundary conditions:

1. Registered landlord: If your landlord is registered under GST, the landlord issues an invoice charging 18% GST. You pay the tax to the landlord and claim ITC based on GSTR-2B reconciliation.
2. Unregistered tenant: If both the landlord and the tenant are unregistered, GST does not apply. Reverse charge under Entry 5AB requires the recipient to be a registered person.
3. Government or local authority properties: Renting of commercial immovable property by the Central Government, State Government, or local authorities to a business entity remains covered under forward charge or specific government rental provisions under Entry 5 of Notification No. 13/2017-Central Tax (Rate).
4. Residential dwelling leased for residence: Renting a residential house for personal residential dwelling to an unregistered individual remains exempt under Notification No. 12/2017-Central Tax (Rate).

Cash ledger settlement under Section 49(4) and Section 2(82)

A vital legal constraint in reverse charge administration involves the method of tax payment:

Under Section 49(4) of the CGST Act read with Section 2(82), electronic credit ledger balances may only be utilized for payment of output tax. Section 2(82) expressly excludes tax payable on a reverse charge basis from the definition of output tax. Therefore, you cannot set off RCM on commercial rent against accumulated input tax credit from purchases or capital goods.

The registered recipient must generate a payment challan (Form GST PMT-06), deposit the requisite funds into the electronic cash ledger, and debit the cash ledger in Table 6 of Form GSTR-3B.

Once paid in cash, the tax qualifies as input tax under Section 2(62) of the CGST Act. Provided the commercial premises are utilized for business operations, the company claims the entire amount back as input tax credit under Section 16(1) of the CGST Act in Table 4(A)(3) of the same monthly GSTR-3B return.

Documentation requirements: self-invoicing and payment vouchers

Because an unregistered landlord cannot issue a GST tax invoice, the registered tenant must comply with statutory documentation rules:

Self-invoice under Section 31(3)(f): Under Section 31(3)(f) of the CGST Act read with Rule 36(1)(b) of the CGST Rules, a registered person liable to pay tax under Section 9(3) or Section 9(4) must issue an invoice in respect of services received from an unregistered supplier on the date of receipt. Notification No. 20/2024-Central Tax inserted Rule 47A, specifying a period of up to thirty days for self-invoice issuance. This document serves as your legal voucher supporting input tax credit admissibility.

Payment voucher under Section 31(3)(g): Under Section 31(3)(g), the recipient must issue a payment voucher to the unregistered landlord at the time of disbursing the rental consideration.

Reporting sequence in Form GSTR-3B

Follow this five-step sequence when filing your monthly return:

1. Calculate monthly rent consideration: Tally the gross commercial rent payable for the period to the unregistered landlord.
2. Generate internal self-invoice: Create the self-invoice applying 18% GST (9% CGST + 9% SGST for intra-state leases, or 18% IGST if the property is located in another State).
3. Declare tax liability in Table 3.1(d): In Form GSTR-3B, enter the rental value and tax in Table 3.1(d) for inward supplies liable to reverse charge. Consult the official GSTN GSTR-3B user manual for table entry protocols.
4. Discharge liability in cash: In Table 6 of Form GSTR-3B, offset the computed tax liability through the electronic cash ledger.
5. Claim input credit in Table 4(A)(3): Report the paid tax in Table 4(A)(3) for Inward supplies liable to reverse charge.

Worked rupee example: retail showroom commercial lease

Consider Zenith Retailers Private Limited, a registered apparel distributor in Pune, Maharashtra. The company leases a 1,800 sq ft commercial showroom in Pune from an unregistered property owner, Mr. Ramesh Patil, at an agreed monthly rent of ₹1,00,000.

The practical accounting workflow executes as follows:

• Zenith Retailers transfers ₹1,00,000 to Mr. Ramesh Patil via bank transfer. The unregistered landlord does not collect GST.
• Zenith Retailers issues an internal self-invoice under Section 31(3)(f) for ₹1,00,000 taxable value plus ₹9,000 CGST and ₹9,000 SGST, totaling ₹1,18,000.
• In its monthly Form GSTR-3B, Zenith Retailers enters ₹1,00,000 in Table 3.1(d) with ₹9,000 CGST and ₹9,000 SGST liability.
• Zenith Retailers deposits ₹18,000 cash via Form GST PMT-06 and debits the cash ledger in Table 6.
• Because the showroom is used entirely to sell taxable readymade garments, Zenith Retailers avails ₹9,000 CGST and ₹9,000 SGST credit in Table 4(A)(3).
• Net financial cost: ₹18,000 is paid in cash and immediately added to the electronic credit ledger. The net GST impact on business earnings is zero, provided the business maintains active taxable sales to utilize the credit.

GSTR-2B auto-population and audit considerations

A critical operational difference between registered and unregistered rentals appears during monthly return reconciliation:

Because an unregistered landlord does not file Form GSTR-1, rental transactions under Entry 5AB will never appear in your auto-generated Form GSTR-2B. Your accounting team must record self-invoices in your purchase register manually and ensure they carry into Table 3.1(d) and Table 4(A)(3). Delaying tax payment while waiting for a supplier record risks an 18% annual interest levy under Section 50(1) of the CGST Act.

Frequently asked questions

Last checked: 25 October 2026. Sources: CBIC Notification No. 09/2024-Central Tax (Rate), CBIC Notification No. 13/2017-Central Tax (Rate), CBIC CGST Act Section 9, CBIC CGST Act Section 16, CBIC CGST Act Section 49, GSTN GSTR-3B User Manual.