A lease is a contractual arrangement between owner (lessor) & user (lessee) whereby one party, the lessor, grants the right to use a particular assets (such as a parcel of land, building, equipment, or machinery etc.) for a specific period and under specified conditions to the other party, the lessee.
Leases are broadly classified into two categories:
1. Finance Lease
Finance lease is relatively for a longer period which is sufficient to amortize the capital invested by the lessor (owner) & leave some profit. It involves the transfer of all risk & rewards associated with the ownership of assets to the lessee but the title may or may not be transferred at the end of lease period.
2. Operating Lease/Service lease/Maintenance lease
Operating lease is relatively for a short period of time. The lease period is shorter than economic life of the assets. Operating lease require the lessor to maintain & service the leased assets.
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, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
GST does not differentiate between Finance & Operating leases. The time of supply of lease depends upon whether “transfer of title” involves in the lease transactions or not.
a) If the lease agreement stipulates transfer of title : Supply of goods
b) If the lease agreement does not stipulate transfer of title : Supply of services
As per Sl No. 5 of Schedule II of CGST Act, 2017 any lease, tenancy, easement, license to occupy land is a supply of services. However, as per Sl No. 5 of Schedule III , Sale of land is neither supply of goods nor services. GST paid on lease rent is eligible for ITC, as it is not covered in the list of blocked credit u/s 17(5).
GST rates on lease transactions
|
Sl No. |
Description of Services | Rate of GST |
| 01 | 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 20 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. | Nil Rate
Entry No.41 of Exemption Notification No.12/2017 Dated 28.06.2017 |
| 02 | Service by way of granting of long term lease of thirty years, or more, on or after 01.04.2019, for construction of residential apartments by a promoter in a project, intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. | Nil Rate
Entry No.41-B of Exemption Notification No.12/2017 Dated 28.06.2017 |
| 03 | Renting or leasing of agro machinery or vacant land with or without a structure incidental to its use for cultivation or agricultural produce. | Nil Rate
Entry No.54(d) of Exemption Notification No.12/2017 Dated 28.06.2017 |
| 04 | Long term lease of land (30 years or more) by any person against consideration in the form of upfront amount (called as premium, salami, cost, price, development charges or by any other name) and/or periodic rent for construction of a project by a promoter | 18 %
Taxable under RCM under entry No.5C |
| 05 | Renting /leasing of immovable property by the Central Government, State Government, Union territory or local authority to a registered person | 18 %
Taxable under RCM under entry No.5A |
| 06 | Leasing/ renting of vacant land by any person (other than 1 to 4 above) | 18 % |
| 07 | Renting/leasing of residential dwelling to a registered person by any person | 18 %
Taxable under RCM under entry No.5AA (N. No. 04/2022-CT(R) Dt. 13-07-2022) |
| 08 | Renting/leasing of residential dwelling to an un-registered person by a registered person | 18 %
Taxable under forward charge (N. No. 04/2022-CT(R) Dt. 13-07-2022 read with N. No. 15/2022-CT(R) Dt. 30-12-2022) |
| 09 | Renting/leasing of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, provided to a body corporate. | 5%
Taxable under RCM under entry No.15 in the hands of Body corporate |
| 10 | Renting/leasing of any motor vehicle designed to carry passengers where the cost of fuel is not included in the consideration charged from the service recipient | 18% |
| 11 | Renting of vehicles to State Transport Undertakings and Local Authorities | Nil
Entry No.22 of Exemption Notification No.12/2017 Dated 28.06.2017 |
| 12 | Transfer of right to use any goods for any purpose (whether or not for a specified period) | Same rate of GST and compensation cess as applicable on supply of similar goods |
| 13 | Any transfer of right in goods or of undivided share in goods without the transfer of title thereof | Same rate of GST and compensation cess as applicable on supply of similar goods |
| 14 | Leasing or Rental Services Concerning Construction Machinery And Equipment With or Without Operator [ SAC 997313] | 18% |
| 15 | Leasing or Rental Services Concerning Office Machinery And Equipment (Except Computers) With or Without Operator [ SAC 997314] | 18% |
| 16 | Leasing or Rental Services Concerning Computers With or Without Operators [ SAC 997315] | 18% |
| 17 | Leasing or Rental Services Concerning Televisions, Radios, Video Cassette Recorders, Projectors, Audio Systems And Related Equipment And Accessories (Home Entertainment Equipment ) [ SAC 997321] | 18% |
| 18 | Leasing or Rental Services Concerning Furniture And Other Household Appliances [ SAC 997323] | 18% |
| 19 | Licensing Services for The Right to Use Computer Software And Databases. [ SAC 997331] | 18% |
| 20 | Licensing Services for The Right to Use Other Intellectual Property Products and other resources N.E.C [ SAC 997339] | 18% |
Note : Please refer Exemption Notification No. 12/ 2017-Central Tax (Rate), Dated 28-06-2017 and RCM Notification No. 13/ 2017-Central Tax (Rate), Dated 28-06-2017 as amended from time to time.
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Author CA. S K Mishra is a Fellow member of The Institute of Chartered Accountants of India, New Delhi and Fellow member of The Institute of Cost Accountants of India, Kolkata. He can be reached at gstresolve@gmail.com , Mob .9805072910.
Author Bio
read your article of GST on Leasing. I have an issue . Could you provide light on same.
We a Private Ltd. Co. purchasing a equipment to be used in cab . The same equipment is sold to Leasing co. which is providing same equipment under lease to us. Equipment is used in third part cab.
We purchased equipment with GST from OEM . We have taken Input credit of GST & sold same to Leasing Co. after levy of GST.
Leasing co. is providing same equipment to us with GST. We have the question that Leasing co. is leving GST on Equipment and is considering as cost for calculating lease rent.
On lease rent also, gst is levied.
We need your opinion whether leasing co. is justified in considering gst on equipment as a cost for arriving at lease rent.
We feel that gst on equipment should not be considered.
Dear Sir, Please clarify whether ITC can be claimed on GST paid under RCM on one Lease Rent paid to Government Authority in New Scheme effective from 01/04/2019 for Non-Affordable Housing Projects ?
Promoter is liable to charge GST @ 5% on supply of service.
good article
sl.no.9 Renting/leasing of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, provided to a body corporate 5% under RCM if supplier not charging GST @12% .
sl.no.10 Renting/leasing of any motor vehicle designed to carry passengers where the cost of fuel is not included in the consideration charged from the service recipient
GST 18% I think it is 5% under RCM or 12% under FCM pl refer notification and confirm sir
Under Sl No. 10, fuel cost is not included in consideration. Hence RCM not applicable.