GST Implication on leasing or selling of land:
For charging GST on any transaction first of all we should know whether such transaction is fall under the definition of supply and also no specific exclusion is given in the act then we would require to pay tax on such transactions.
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.
From the above definition it is cleared that the term 'lease' is covered within the meaning & scope of 'supply' and it is a taxable supply.
What is the impact on Lease of land transactions?
The nature of supply has not been defined anywhere in GST Act or Rules. Also GST law is silent on the part of specific bifurcation like whether transaction should be finance lease or operating lease. Hence To classify a lease transaction as either supply of goods or supply of service, we would required 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.
The 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
According to para No.2 (a) of Schedule II of CGST Act, 2017 any lease, tenancy, easement, license to occupy land is a supply of services. Also there is one judgment of The Bombay High Court where it was 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.
According to 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.
Description of services
Rate of GT
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.
renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;
Even though 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. Therefore 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).
What is the impact on Sale of land transaction?
First of we need to ensure that whether such transaction is fall under the category of goods? Or whether such transaction is excluded from GST through any notification?
As per Section 2(52) of the CGST Act, 2017, 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 &good; under GST. Sale of land doesn’t attract GST even as states impose stamp duty and registration fees on such transactions. According to Schedule III of CGST Act, 2017 stipulates the activities or transactions which shall be treated neither as a Supply of goods nor services includes Sale of land. Which is neither supply of goods nor services. So, there is no GST implication on transfer of land other than for purposes of leasing/renting.
Note: while apportionment of input tax credit, one should include sale of land in the value of exempt supply.
While taking decision whether one should buy or lease the land from finance perspective, one should also focus on GST impact and it benefit.