GST on Leasehold Land Transfer: Navigating Complex Issues
The recent issuance of notices by the Goods & Services Tax (GST) authorities in India regarding the GST on leasehold land transfer has ignited a significant debate among industry stakeholders. The core issue is whether these transactions should be classified as a sale of land, which is traditionally exempt from GST, or as a service, which would attract an 18% GST. This classification has substantial implications for the real estate market, as it could lead to dual taxation—both GST and stamp duty—on the same transaction, increasing the financial burden on businesses and individuals.
In India, land parcels are often transferred on a leasehold basis by industrial development corporations and governmental bodies. When these leasehold lands are subsequently sold by the original leaseholder to a new party, the tax implications become contentious. Tax experts argue that the transfer of leasehold land should be treated as a sale of immovable property, which is not subject to GST. They contend that the transfer of leasehold interest is akin to a sale of land, thus falling outside the GST’s scope.
However, tax authorities view these transactions as the transfer of leasehold rights, classifying them as a service subject to GST. This interpretation of GST on leasehold land transfer could lead to increased costs for acquiring leasehold land, with potential ripple effects on homebuyers who might bear the burden of higher project costs.
The legal challenge to this interpretation has already begun, with Abhishek A Rastogi, founder of Rastogi Chambers, moving to court in Maharashtra to test the constitutional validity of applying GST to these transactions. The outcome of this legal battle is likely to set a precedent for how similar transactions are handled under the GST regime in the future, impacting the broader real estate market and future transactions significantly.
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