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The taxability of a long term lease has been an unintelligible issue for many decades. Before the GST regime, all the transactions involving transfer of title of an immovable property were not included under the taxation. As, the term “immovable property” was not definite under the former tax regime, the debate was on whether the long term land lease can be considered as the benefits occurring out of the land and consequently are enclosed under definition of “immovable property” in terms of General Clauses Act.
Apart from the above issue, the point of discussion was whether the long term lease of land will actually result in the transfer of the title of the immovable property. With the introduction of the goods and services tax it was expected that the immovable property will not be taxable.
However recently, Bombay High Court in the case of Builders Association of Navi Mumbai Vs Union of India, while exploratory the taxability of “one-time premium” received for long-term land lease, has opined that the same would be eligible to GST.
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“A lease of a immovable property is a transfer of a right to enjoy such property, made for an assured time, implied or express, or in perpetuity, in deliberation of a price paid or promised, or of money, a share of crops, service or any other thing of worth, to be rendered occasionally or on particular occasions to the transferor by the transferee, who admits the transfer on such terms”
In common phraseology, a long term land lease is a form of property tenure or land tenure, where one person buys the right to an interest in land or a building for a given span of time (often measured in centuries or decades; a 99-year lease being a common example).
If we see in terms of the GST law, the “supply” of the services or goods is a taxable event that draws GST. Therefore, the most important question that arises here is whether the long term land lease amounts to “supply of goods or services” and whether the same shall be liable to GST.
Under section 7(1) of CGST Act the term supply means:
Land and Lease
In case of the aforementioned entry under Schedule II, any easement, tenancy or lease, license to procure land has been considered as a “supply of service”.
However, the above mentioned transaction would be liable to GST provided that the said deal is not covered in the negative list as specified under Schedule III.
The Bombay High Court in the case of Builders Association of Navi Mumbai Vs Union of India stated that, while examining of the taxability of “one time premium” received for the purpose of long term land lease, has opined that the same would be eligible to GST.
Read our article:Are you a Casual Taxable Person under GST? Know what provisions are applicable to you.
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