New Change for GST RCM from 16.01.2025
RCM on Rent
Govt has changed Entry No. 5AB of RCM Notification no.13/2017 of Central Tax Rate
| Sl. No. (1) | Category of Supply of Services (2) | Supplier of Service (3) | Recipient of Service (4) |
|---|---|---|---|
| 5AB (Till 15 Jan 2025) NN 09/2024 | Service by way of renting of any property other than residential dwelling. | Any unregistered person | Any registered person. |
| 5AB (Now) (From 16 Jan 2025) NN 07/2025 | Service by way of renting of any property other than residential dwelling. | Any unregistered person | Any registered person other than a person who has opted to pay tax under composition levy. |
Example:
A small business owner Mr A (registered under GST, but not under the composition scheme) rents an office space from Mr B( an unregistered landlord) . The monthly rent for the office space is Rs. 25,000.
In this case, the small business owner Mr A is liable to pay GST on the rent under the reverse charge mechanism (RCM). This means the business owner will have to calculate and pay the GST to the government, even though it is the landlord who is providing the service.
Reason:
The RCM applies here because:
- The supplier of the service (the landlord) is unregistered.
- The recipient of the service (the small business owner) is a registered person but not under the composition scheme.
Key takeaway:
This rule ensures that GST is collected even when services are provided by unregistered individuals or entities to registered businesses. It places the responsibility on the registered recipient of the service to pay the GST, simplifying the process for the government and ensuring compliance.
Example 2:
- Landlord: Not registered under GST.
- Tenant: A grocery store owner registered under the composition scheme.
- Scenario: The grocery store owner rents a shop from the unregistered landlord for a monthly rent of Rs. 15,000.
GST Implication:
In this case, the reverse charge mechanism (RCM) does not apply.
Reason:
Even though the landlord is unregistered, the tenant is a registered person under the composition scheme. Businesses under the composition scheme are not required to pay GST under RCM.
RCM on Sponsorship Services :
Govt has changed Entry No 4 of RCM Notification no.13/2017 of Central Tax Rate
| Sl. No. (1) | Category of Supply of Services (2) | Supplier of Service (3) | Recipient of Service (4) |
|---|---|---|---|
| 4 Till 15 Jan 2025 | Services provided by way of sponsorship to any body corporate or partnership firm | Any person | Any body corporate or partnership firm located in the taxable territory. |
| From 16 Jan 2025 NN 07/2025 | Services provided by way of sponsorship to any body corporate or partnership firm | Any person other than a body corporate | Any body corporate or partnership firm located in the taxable territory. |
Change in GST w.e.f 16.01.2015
Under the GST regime, the reverse charge mechanism (RCM) applies to services provided by way of sponsorship to any body corporate or partnership firm if the following conditions are met:
- Supplier: Any person other than a body corporate (e.g., an individual or a partnership firm)
- Recipient: Any body corporate or partnership firm located in the taxable territory.
In such cases, the recipient of the sponsorship services is liable to pay GST under RCM instead of the supplier.
Example 1
Imagine a scenario where a Mr A freelance event organizer (not a body corporate) provides sponsorship services to a technology company Pvt Ltd (a body corporate) for an upcoming tech conference.
In this case, the technology company Pvt Ltd would be liable to pay GST under RCM, even though they are receiving the service. This is because the supplier of the service is not a body corporate.
Key takeaway: This rule ensures that GST is collected even when services are provided by individuals or smaller entities to larger corporations. It places the responsibility on the body corporate receiving the service to pay the GST, simplifying the process for the government and ensuring compliance.
Example 2:
- Supplier: “XYZ Marketing Solutions Pvt. Ltd.” (a body corporate specializing in event promotions and sponsorships)
- Recipient: “Tech Solutions Ltd.” (a body corporate that develops software)
Scenario: Tech Solutions Ltd. wants to increase brand visibility and sponsors a major tech conference organized by XYZ Marketing Solutions Pvt. Ltd. The sponsorship deal is valued at Rs. 5,00,000.
GST Implication:
Since the supplier (XYZ Marketing Solutions Pvt. Ltd.) is a body corporate, the reverse charge mechanism (RCM) does not apply.
Therefore:
- XYZ Marketing Solutions Pvt. Ltd. will charge GST to Tech Solutions Ltd. on the sponsorship amount.
- XYZ Marketing Solutions Pvt. Ltd. will be responsible for depositing the collected GST to the government.
This example illustrates that when the supplier of sponsorship services is a body corporate, the normal GST rules apply, and the supplier is responsible for handling the GST, not the recipient.