GST Chargeable on Transfer of Leasehold Rights: AAR

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All stakeholders must note GST is chargeable on Transfer of Leasehold Rights. As per the latest notification by AAR(Authority for Advance Ruling), GST should be levied while transferring Leasehold rights. Thus it is an important notification as many people aren’t aware about the GST Rate and its applicability on transfer of Leasehold Rights. In this article, we will understand this new notification on GST Chargeable on Transfer of Leasehold Rights in detail.

What does Leasehold Rights mean?

A leasehold is an accounting word that refers to an item or property which the leaser (renter), in exchange for regular payments, contracts to lease from a leaser (ownership) for an agreed period of time. As per Leasehold Rights, one has the right to remain and utilize the property for a specified duration, if you have acquired a tenant building or Leasehold property.

The ownership of the property is returned to the landowner once the term of the lease ends.

Query on GST Rates on Transfer of Leasehold Rights

The applicant, India Pistons Limited has stated that they are engaged in the manufacturing of goods and were allotted land measuring to an extent of 15.34 acres. The State Industrial Promotion Corporation of Tamilnadu (SIPCOT) was responsible for allocating the land.

Subsequent to the above allotment, there were certain lands allotted to them and remained unutilized.

However,  the Government of Tamilnadu entered into an MOU (Memorandum of Understanding) with M/s. INOX Air Products Private Limited for setting up a state-of-the-art Ultra High Purity Cryogenic Liquid Medical and Industrial Oxygen Plant.

As per this MOU, they agreed to transfer the property admeasuring 5 acres to INOX for Rs. 15 Crores for the leasehold rights and Rs. 24 lakhs for superstructures.

As a result, SIPCOT granted approval for the transfer of balance period of leasehold rights measuring 5.00 acres of land along with existing shed/superstructures, out of 15.34 acres at SIPCOT Industrial Complex, Hosur Phase-II from them to INOX.

Thus, India Pistons Limited approached AAR Tamil Nadu to know –

  • Whether GST is applicable on the transfer of leasehold rights while considering Rs. 15 Crores received by them from M/s. INOX Air Products Private Limited for the land allocated by State Industrial Promotion Corporation of Tamilnadu?
  • Would Inox Air Products Private Limited be subject to the ‘Supply’ definition in Section 7 of the Goods and Services Act 2017 as a result of the subsequent transfer of SIPCOT land from an applicant to an applicant?

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GST chargeable on Transfer of Leasehold Rights

In its recent judgment in Indian Pistons Limited, the Tamil Nadu Advance Ruling Authority (AAR) states that the transfer of rental rights is a taxable act. Therefore, it is a taxable service and it is classified as ‘Other Miscellaneous Services’ with SAC 9997 code.

To know more about SAC Codes, you can visit – List of SAC Code with Tax Rates 

Rate of GST chargeable on Transfer of Leasehold Rights

As per the Tamil Nadu Advance Ruling Authority(AAR) the 18% GST rate is payable on the transfer of leasehold rights. The eighteen percent GST Rate comprises both SGST and CGST each having 9 percent.

In simple words, while transferring Leasehold Rights in India, the stakeholders have to pay 9% GST to the state government. And similarly 9% GST to the central government.

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If you want any other guidance related to GST Registration or GST Return Filing, please feel free to talk to our business advisors at 8881-069-069.

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