GST implication on a long term lease

long term lease

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.

Meaning of lease and long term lease?

“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).

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Taxability of long term lease

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:

  1. All forms of supply of services and goods or both such as transfer, sale, exchange, barter, license, lease, rental  or disposal agreed or made to be made for a consideration by a person in the furtherance or course of business;
  2. Import of services for a consideration whether or not in the furtherance or course of business ;
  3. All the activities that are specified in Schedule I, agreed or made to be made lacking a consideration; and
  4. The activities to be treated as supply of supply or goods of services as referred to in Schedule II of the CGST Act[1].

Land and Lease

  1. In case of an any easement, tenancy or lease, license to procure any land
  2. any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.”

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.

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The Judicial ruling related long term lease

 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.


While the aforementioned rights (long term land lease) may get covered under the definition “land”, however, as the same does not involve in the complete transfer of ownership from the landowner to the developer, it may not pass the prescribed test to qualify it as a “sale”. Accordingly, with this logic, the aforementioned transactions may not get covered under the extent of entry “Sale of the land” which is not accountable to GST. Thus, the said transactions can be considered to be eligible for tax.

Read our article:Are you a Casual Taxable Person under GST? Know what provisions are applicable to you.

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