CBIC’s circular for issues related to taxability of tenancy rights under GST
F. No. 341/28/2017-TRU
Government of India
Ministry of Finance
Department of Revenue
Tax Research Unit
New Delhi, the 2nd May, 2018
The Principal Chief Commissioner/Chief Commissioners/ Principal Commissioner/Commissioner of Central Tax (All) /The Principal Director Generals/ Director Generals (All)
Subject: Issue related to taxability of tenancy rights under GST- regarding
1. Doubts have been raised as to,-
(i) Whether transfer of tenancy rights to an incoming tenant, consideration for which is inform of tenancy premium, shall attract GST when stamp duty and registration charges islevied on the said premium, if yes what would be the applicable rate
(ii) Further, in case of transfer of tenancy rights, a part of the consideration for suchtransfer accrues to the outgoing tenant, whether such supplies will also attract GST
2. The issue has been examined. The transfer of tenancy rights against tenancy premiumwhich is also known as pagadi system is prevalent in some States. In this system the tenant
acquires, tenancy rights in the property against payment of tenancy premium(pagadi). The landlord may be owner of the property but the possession of the same lies with the tenant. Thetenant pays periodic rent to the landlord as long as he occupies the property. The tenant alsousually has the option to sell the tenancy right of the said property and in such a case has to sharea percentage of the proceed with owner of land, as laid down in their tenancy agreement.
Alternatively, the landlord pays to tenant the prevailing tenancy premium to get the propertyvacated. Such properties in Maharashtra are governed by Maharashtra Rent Control Act, 1999.
3. As per section 9(1) of the CGST Act there shall be levied central tax on the intra-Statesupplies of services. The scope of supply includes all forms of supply of goods and services or
both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed tobe made for a consideration by a person in the course or furtherance of business and also includesthe activities specified in Schedule II. The activity of transfer of tenancy right againstconsideration in the form of tenancy premium is a supply of service liable to GST. It is a form oflease or renting of property and such activity is specifically declared to be a service in para 2 ofSchedule II i.e. any lease, tenancy, easement, licence to occupy land is a supply of services
4. The contention that stamp duty and registration charges is levied on such transfers oftenancy rights, and such transaction thus should not be subjected to GST, is not relevant. Merelybecause a transaction or a supply involves execution of documents which may require registrationand payment of registration fee and stamp duty, would not preclude them from the scope ofsupply of goods and services and from payment of GST. The transfer of tenancy rights cannot betreated as sale of land or building declared as neither a supply of goods nor of services in para 5of Schedule III to CGST Act, 2017. Thus a consideration for the said activity shall attract levy ofGST.
5. To sum up, the activity of transfer of tenancy rights is squarely covered under the scopeof supply and taxable per-se. Transfer of tenancy rights to a new tenant against consideration inthe form of tenancy premium is taxable. However, renting of residential dwelling for use as aresidence is exempt[Sl. No. 12 of notification No. 12/2017-Central Tax(Rate)]. Hence, grant oftenancy rights in a residential dwelling for use as residence dwelling against tenancy premium orperiodic rent or both is exempt. As regards services provided by outgoing tenant by way ofsurrendering the tenancy rights against consideration in the form of a portion of tenancy premiumis liable to GST.
6. Difficulty if any, in the implementation of this circular may be brought to the notice of theBoard.
Technical Officer (TRU)
Email: [email protected]