In the recent ruling by the AAR, there is a lot of relief for all the corporate individuals as well as for the companies as now the tax credit on the goods and services tax can be availed on the upfront lease premium. In the previous scenario, the same was not allowed to be taken.
The AAR Tamil Nadu on consideration of the facts and in the 27th July ruling mentioned that “The upfront premium made is the lease rentals as per the allotment order/letter of Chennai Port Trusts and it is nothing but lease rentals paid for the services of ‘renting of immovable property for business purposes”.
For the basic information, the upfront premium is the payment which is not related to construction activity for the covered space and against the rental value of the rent period which is computed on the lease period and also upfront collected. However, the final judgement came that the input tax credit must be allowed on the upfront payment of rent.
The ruling from AAR will be a great benefit for the tenants who were earlier not able to get the GST ITC on their rent amount paid as the tax authorities were denying the ITC on the grounds of immovable property.
The reason is the tenants may have used the amount for any construction or renovation work before setting up the property for usage and the credit gets rejected on the basis of the input service of lease that may be used in the construction.
Another reason from the tax department is that the input tax credit is not allowed on any real estate deals and they believe that the same might be applicable on the lease premiums also.
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The GST amount is payable on the lease premiums which is the amount which is decided by both parties. As per other experts, “This is a positive ruling which has given due weightage to the nature of input service being incurred and its use in business to determine the credit eligibility”
Also if we see through other examples the GST is now applicable to apartment rentals by the senior executives of companies. Also, there is an 18 per cent GST on renting of apartments by registered entities.
