ITC ELIGIBLE ONIT SERVICES RECEIVED IN THE FORM OF TRANSFER OF RIGHTS IN LEASEHOLD LAND

Hi S. Ramakrishnan,

Regarding your query on Input Tax Credit (ITC) eligibility on GST paid for transfer of leasehold rights in land, here’s the detailed answer:

Situation:

• You want to purchase leasehold rights of land from an owner.

• Owner is charging 18% GST on the transfer.

• You want to know if ITC is eligible on this GST paid.

Legal Position on ITC for Leasehold Rights Transfer:

1. GST on Leasehold Rights:

   • Transfer of leasehold rights of land is considered a supply of service under GST.

   • As per the GST rate schedule, lease of land is taxable at 18% GST (except lease of agricultural land).

2. ITC Eligibility:

   • As per Section 17(5) of the CGST Act, input tax credit is not allowed on certain goods or services including:

     • (c) Land and building (except when used in the course or furtherance of business as a taxable supply of the same land or building).

   • The transfer of leasehold rights of land falls under land-related services on which ITC is generally not allowed.

3. Supporting Circulars and Notifications:

   • Various GST circulars clarify that ITC on purchase of land or rights in land is not eligible.

   • Even if GST is charged on such transfer, ITC cannot be claimed because land is a capital asset excluded from ITC under Section 17(5).

4. Exceptions:

   • If the land or leasehold rights are used exclusively for making taxable supplies (like renting it out with GST), then ITC may be considered.

   • But in most cases, ITC on leasehold rights is denied.

Summary Table:

Recommendation:

• You cannot claim ITC on GST paid for transfer of leasehold rights of land.

• The GST paid will be part of your cost of acquisition.