Real Estate Industry Fears Receiving GST Notices on Transfers of Leasehold Lands

The tax implications issue of transferring the leasehold land has arrived again as it has been initiated by the authorities to issue the notices to recover dues for transferring the same. It sparked an influential debate among the industry stakeholders since it is anticipated to have an impact on subsequent transactions and the wider real estate market.

GST council has issued these notices for the transfer of leasehold land. The issue is for the thing that whether the transfer of leasehold land comprises of a sale of land or a service.

As per the tax council, these transfers are entitled as a service and are within 18% GST. The tax is imposed in addition to the stamp duty already levied via the respective state governments, adding a fiscal load to such transactions.

Industrial development corporations and other governmental bodies in India often transfer land parcels on leasehold grounds. Such leasehold land is certainly sold via the original leaseholder to the new party. The major question arises is that whether such transactions must be considered as a land sale, which is exempted from or as a service, thereby drawing an 18% tax.

If GST is applicable on such transactions, there would be a dual imposition of the stamp duty and GST on the identical transactions, directing to the tax cascading through the way of double taxation on the identical supply.

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The same goes against the conceptual GST framework, which has proceeded to the court in Maharashtra, for testing the constitutional validity of GST applicability on such transactions.

Tax experts contend that the transfer of leasehold land is similar to the land sale and should not be subject to taxation under the GST. They think that since the leasehold interest in the land is being transferred, it should be considered a sale of immovable property, which falls outside the scope of the GST.

The tax authorities argue that these transactions involve the transfer of leasehold rights, which they classify as a service subject to GST. This conflict has important consequences for businesses and individuals engaged in these transactions, as the added GST could raise the cost of acquiring leasehold land. Ultimately, homebuyers may have to bear the burden of the higher project cost.

Some of these notices are being issued now to make sure that the claims are made within the time limit and do not become invalid. However, the result of this matter will probably establish a precedent for how similar transactions will be handled under the GST system in the future.