The issue of tax implications of transferring leasehold land has come to the fore once again as the authorities have started to issue notices to recover dues for such a transfer. This has sparked a significant debate among industry stakeholders as it is expected to have a major impact on future transactions and the broader real estate market.
The Goods & Services Tax (GST) authorities have recently issued these notices concerning the transfer of leasehold land. The crux of the issue lies in whether the transfer of leasehold land constitutes a sale of land or a service.
According to the tax authorities, such transfers qualify as a service, subjecting them to an 18% GST. This tax is levied in addition to the stamp duty already imposed by respective state governments, adding a financial burden to these transactions.
In India, industrial development corporations and other governmental bodies often transfer land parcels on a leasehold basis. These leasehold lands are sometimes sold by the original leaseholder to a new party.
The key question that has arisen here is whether these transactions should be treated as a sale of land, which is traditionally exempt from GST, or as a service, thereby attracting the 18% tax.
“Hypothetically, if GST is made applicable on these transactions, then there will be a dual levy of stamp duty and GST on the same transaction, thereby leading to tax cascading by way of double taxation on the same supply. This is against the conceptual framework of GST,” explained Abhishek A Rastogi, founder of Rastogi Chambers, who has already moved to the court in Maharashtra, for testing the constitutional validity of GST applicability on these transactions.
Tax experts argue that the transfer of leasehold land is akin to the sale of land and should not be taxed under GST. They believe that since the leasehold interest in the land is being transferred, it should be viewed as a sale of immovable property, which is not within the GST’s purview. However, the tax authorities maintain that these transactions represent the transfer of leasehold rights, classifying them as a service that is subject to GST.
This dispute has significant implications for businesses and individuals involved in such transactions, as the additional GST could increase the cost of acquiring leasehold land and ultimately homebuyer who may have to bear the burden of higher project cost.
Some of these notices are issued now to ensure that the demands do not become time barred and that these are within the period of limitation. However, the outcome of this issue is likely to set a precedent for how similar transactions are treated under the GST regime in the future.
