GST on sale or leasing of land


The taxable event in GST is 'supply' of goods or services or both. So a transaction to become taxable it must covers within the meaning & scope of 'supply'.

As per Sec 7 of the CGST Act, 2017, the expression supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

As per Sec 2(83) 'outward supply' in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business.

From the above discussion, it is cleared that the term 'lease' is covered within the meaning & scope of 'supply' and it is a taxable supply.

The term lease has not been defined anywhere in GST Act or Rules. To classify a lease transaction as either supply of goods or supply of service, we have to refer Schedule II of the CGST Act, 2017 where in clear guidelines for classification of a transaction as either 'supply of goods' or 'supply of services' has been enumerated, based on certain parameters.

GST does not differentiate between Finance & Operating Leases. What is important is whether 'transfer of title' involves in the lease transactions or not.

  • If the lease agreement stipulates transfer of title : Supply of goods
  • If the lease agreement does not stipulates transfer of title : Supply of services

Note : A mere option to buy the assets at the end of lease period will not cover within the meaning of 'Transfer of Title'.

GST on leasing of land

As per Para No.2(a) of Schedule II of CGST Act,2017 any lease, tenancy, easement, license to occupy land is a supply of services.

The Bombay High Court has ruled that the one-time premium payable for long-term lease (30 years or more) of land would attract GST as it constitute ‘supply’ under the GST Act.

Short-term lease (less than 30 years) are already within the ambit of GST.

In exercise of the powers conferred by section 11(1) of the Central Goods & Services Tax Act, 2017 the Central Government Vide Notification No 12/2017 - Central Tax (rate) dated 28.06.2017 has notified following category of leasing of land which are exempt from Tax under GST.


Sl No.

Description of services

Rate of GST

41

Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more) of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 50 per cent. or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area.

Nil

54

d) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;

Nil


From above it can be inferred that leasing of land by farmer for agricultural produce/ farm house/contract farming and industrial plots or plots for development of infrastructure for financial business are exempted supply of service. However leasing of vacant land for commercial purpose/ warehousing is a taxable supply of service.

Note : Besides leasing/renting of above type of land, all other types of leasing/renting of land is a supply of service as per Sl No.2(a) of Schedule II of CGST Act,2017 & will attract GST of 18%.

GST paid on lease rent will be eligible for ITC as it is not covered in the list of blocked credit u/s 17(5).

GST on Sale of land

As per Section 2(52) of the CGST Act, 2017, 'goods' means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

Since land is not a movable property, it does not falls within the definitions of 'goods' under GST. Sale of land doesn’t attract GST even as states impose stamp duty and registration fees on such transactions.

Schedule III of CGST Act, 2017 stipulates the activities or transactions which shall be treated neither as a Supply of goods nor services.

As per Paragraph 5 of said schedule , Sale of land is neither supply of goods nor services. So, there is no GST implication on transfer of land other than for purposes of leasing/renting.

As per Sec 17(3) of CGST Act 2017, while apportionment of input tax credit, the value of exempt supply shall include sale of land.

The Author is a Fellow member of The Institute of Chartered Accountants of India , New Delhi & Fellow member of The Institute of Cost Accountants of India, Kolkata and can be reached at gstresolve@gmail.com

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CA S K MISHRA 
on 07 January 2019
Published in GST
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