New GST Notices on Leasehold Land Transfers Raise Real Estate Concerns

📅 September 10, 2024

The real estate sector is grappling with fresh concerns as authorities issue notices to recover Goods & Services Tax (GST) dues on the transfer of leasehold land. This development has sparked debate among industry stakeholders, as it could significantly affect future transactions and the overall real estate market.

Key Issue: Sale of Land or Service?

The controversy centers on whether the transfer of leasehold land should be classified as a sale of land or as a service. While land sales are traditionally exempt from GST, the authorities argue that these transactions qualify as a service, subjecting them to an 18% GST. This tax is in addition to the existing stamp duty imposed by state governments, resulting in a potential dual tax burden.

In India, many land parcels are leased by industrial development corporations and governmental bodies. When the original leaseholder transfers these leasehold rights to another party, the question arises: should this be treated as a land sale, which is exempt from GST, or as a service, attracting an 18% tax?

Legal Challenges and Industry Concerns

Legal experts, including Abhishek A Rastogi, founder of Rastogi Chambers, have contested the GST applicability in court. Rastogi argues that imposing GST on leasehold land transfers creates a situation of double taxation, with both stamp duty and GST being levied on the same transaction. He maintains that this contradicts the conceptual framework of GST, which aims to avoid tax cascading.

Tax professionals generally believe that transferring leasehold land is akin to the sale of immovable property and should not fall under GST’s purview. However, tax authorities classify these transfers as services, insisting they fall within the GST framework.

Potential Impact on Real Estate