Arjun (Fictional Character): Krishna, recently Government have issued a circular in relation to tenancy right what exactly has been mentioned in this in this Circular?
Krishna (Fictional Character): Arjuna, as you know, sale of immovable property like land and building is not chargeable to Tax under GST. Also renting of residential property is Exempt from the levy of tax. But renting of commercial properties like shops, offices, etc, are taxable. Taxpayers were in confusion that transfer of tenancy rights against premium should be liable to GST or not. Hence, to clarify this issue the department has come up with this circular.
Arjun: Krishna, what is taxability of the transfer of tenancy rights against tenancy premium?
Krishna: Arjuna, the transfer of tenancy rights against tenancy premium popularly known as “pagadai system” wherein the landlord is the owner of the property but the possession of the property is with the tenant for which he gives periodic rent to the landlord but the tenant also has an option to sell the tenancy rights of the said property. The consideration received for the transfer of such right is taxable under GST.
Arjun: Krishna, are there any exceptions for the above
Krishna: Arjuna, there are two exceptions for the above consideration taxability
Then amount received against the transfer of tenancy rights, would not be liable to GST as it is exempt.
Arjun: Krishna, can you elaborate the same?
Krishna: Arjuna, for example CIDCO gives a plot on the lease for 99 years to Mr ‘A’, then no GST would be leviable on the tenancy premium received by CIDCO, being a government body.
But when same rights are transferred by Mr. ‘A’ to Mr. ‘B’ against tenancy premium/ amount, GST would be leviable on such consideration received by Mr. ‘A’, as namely-
Arjun: Krishna, What lesson the taxpayer should take from this?
Krishna: Arjuna, while renting or transferring the rights of the property, taxpayer should take due diligence that to whom the tenancy right is being transferred, type of property for which rights are being transferred (Commercial and residential) and applicability of the GST on the Same.