Is the Government Turning Up the Heat on Small Businesses with the Latest GST Notification?
The recent GST amendment on rent payments under the Reverse Charge Mechanism (RCM) could spell trouble for small businesses, particularly restaurants. Starting October 10, 2024, restaurants will be required to pay 18% GST on rent under RCM—a significant shift that could severely impact their already tight working capital.
Restaurants operate under a reduced GST rate of 5% on food supplies, which disallows them from claiming Input Tax Credit (ITC). This means the 18% GST on rent becomes an additional expense that businesses cannot recover.
Let’s break this down:
* Before October 10, 2024: If a restaurant paid Rs. 1 lakh in rent, that was their total expense.
* After October 10, 2024: Rent will now cost Rs. 1 lakh + Rs. 18,000 (18% GST), totaling Rs. 1.18 lakh.
Adding to the challenge, ITC refunds are only available for inputs (goods), not input services like rent. This restriction makes the situation even more burdensome for small businesses operating on slim margins.
The outcome? Increased costs, tighter cash flows, and potentially higher food prices for consumers. Many restaurants, especially smaller ones, may struggle to stay afloat.
I urge the GST Council to reconsider and provide much-needed relief for the restaurant industry. A balanced approach could prevent small businesses from bearing the brunt of these changes.
What are your thoughts on this amendment? Let’s discuss in the comments.
As per Notification No. 09/2024 dated October 08, 2024, the rent payment made to unregistered landlords are under Reverse Charge Mechanism.
This document has quick view on all rent payments.
