Lease & rental Services With or Without Operators under GST

Before discussing the Subject ‘GST on Lease & rental Services With or Without Operators’ it is important to under the meaning of Lease, Rental and License.

1. Meaning of lease under GST Scenario: A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (Owner) for use of an asset. Like Property, Building and Vehicles are common assets that are leased. Industrial or business equipment is also leased. Broadly, put a lease agreement is a contract between two parties, the lessor and the lessee. The lessor is the legal owner of the asset. The lessee obtains the right to use the asset in return for regular rental payments. The lessee also agrees to abide by various conditions regarding their use of the property or equipment.

2. Meaning of Rental under GST Scenario: The meaning of Rental means some consideration has given for use of others property on monthly. yearly basis. The term rental agreement can be used to describe a lease in which the asset is tangible property and the license, where the asset is intangible property.

3. Meaning of License under GST Scenario: The meaning of License under GST scenario “ License is different from lease. Where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the property of the grantor. Something which would, in the absence of such right, be unlawful, the right is called a license. The grant of license may be express or implied from the conduct of the grantor. The seminal difference between a lease and a license is that a lease generally provides for regular periodic payments during its term and a specific ending date. If a contract has no ending date, then it may be in the form of a perpetual license and still not be a lease.

4. Meaning of Transfer of right to use goods:– Right to use goods may be of different types such as, as owner, as lessor, as bailer, as agent, as holder of the goods etc., This clause is applicable where right in goods in transferred without the transfer of title thereof. Transfer of right to use goods is a well-recognized constitutional and legal concept.

Every transfer of goods on lease, license or hiring basis does not result in transfer of right to use goods. The Hon’ble Supreme Court of India in BSNL case the following test laid down to determine whether a transaction involves transfer of right to use goods, is as follows:

(i) There must be goods available for delivery,

(ii) There must be a consensus ad idem as to the identity of the goods,

(iii) The transferee should have legal right to use the goods, Consequently all legal consequences of such use including any permission or licenses required therefore should be available to the transferee,

(iv) For the period during which the transferee has such legal right, it has to be to the exclusion to the transferor, This is the necessary concomitant of the plan language of the statute, viz a “transfer of the right to use” and not merely a license to use the goods,

(v) Having transferred, the owner cannot again transfer the same right to others.

Whether a transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole, to determine the nature of the transaction.

In relation to transfer of right in respect of goods, Schedule II f the GST Act as well as entry No. 17 has two separate clauses. Clause (iii) and Clause (iv). The clause (iii) uses the expressions, ”Transfer of the right to use goods” ; and Clause(iv) ‘Transfer of the Right in goods”. Looking at both the clauses, there appears to be an overlap between these two clauses. Nevertheless, both these clauses are taxable as services under the GST, and have identical rates of tax.

1. The following services are treated as Rental services of transport vehicles with or without operators :This services includes rental of buses or coaches, trucks and other motorized freight vehicles, with or without operators for a period of time, not generally dependent on distance, he rental defines how and when the vehicles will be operated, determining schedules, routes and other operational considerations. The Service Account Code of this service is 996601 as per GST Law, 2017.
2. Rental services of water vessels including passenger vessels, freight vessels etc. with or without operator: The rental services of all types of self-propelled passenger/freight vessels including tankers, bulk dry cargo vessels, cargo and freight vessels, tugboats and fishing vessels for coastal, inland and transoceanic water transport with/without crew. The Services Account Code of this services is 996602 as per GST Law, 2017.
3. Rental services of aircraft including passenger aircraft, freight aircraft etc., with or without operator: The rental services of passenger aircraft or aircraft suitable for passenger and/ or freight (including helicopters) with or without crew. The Services Account Code of this services is 996603 as per GST Law, 2017.
4. Leasing or rental services concerning machinery and equipment including containers with or without operator: This services includes leasing and rental services of intermodal containers, leasing, rental or hiring services concerning other land transport equipment’s including containers with or without operator. The Service Account Code of this services is 997311 as per GST Act, 2017.
5. Leasing or rental services concerning agricultural machinery and equipment with or without operator: This services includes leasing, rental or hiring services concerning agricultural tractors and implements seed and seedling planters, harvesting cropping and sorting machinery etc., The Service Account Code of this services is 997312 as per GST Act, 2017.
6. Leasing or rental services concerning construction machinery and equipment wit or without operator: This services incudes leasing, rental or hiring services concerning tractors for construction and earth moving purposes, road graders, steamrollers, bulldozers, excavating machinery front- end loaders scaffolding with or with operators. The Service Account Code of this services is 997313as per GST Act, 2017.
7. Leasing or rental services concerning office machinery and equipment (except computers) with or without operator: This services includes leasing, rental or hiring services concerning all kinds of office machinery and equipment such as photocopiers, typewriters and word processers, accounting machinery and equipment such as electronic calculators, cash registers and other machines incorporating a calculating deice, leasing, rental or hiring of office safes etc., The Service Account Code of this services is 997314 as per GST Act, 2017.
8. Leasing or rental services concerning computers with or without operators: This services includes leasing or rental or hiring services concerning computing machinery and equipment such as electronic data processors, central processing units, peripheral units and magnetic or optical readers, with or without operator.., The Service Account Code of this services is 997315as per GST Act, 2017.
9. Leasing or rental services concerning telecommunications equipment with or without operator: This services incudes leasing, rental or hiring services concerning commercial radio, television ad telecommunication equipment, Telephones, fax machines, pagers and cellular telephones etc.., The Service Account Code of this services is 997316 as per GST Act, 2017.
10. Leasing or rental services concerning other machinery and equipment with or without operator: This services includes leasing, renting or hiring services concerning all kinds of machinery, whether or not electrical, except personal or household goods, generally used as capital goods by industry, such as engines and turbines, machine tools, mining and oil field equipment, lifting and handling equipment, coin/card operated gambling machines, exhibition material, professional scientific measuring and control apparatus accommodation and office containers other commercial and industrial machinery etc.,., The Service Account Code of this services is 997319as per GST Act, 2017.
11. Leasing or rental services concerning televisions, radio, video cassette recorders and related equipment and accessories (Home Entertainment Equipment): This services includes leasing renting or hiring services concerning all kinds of electrical and electronic home entertainment equipment, such as stereo systems, tape decks, televisions radios, videos cassette recorders and similar equipment leasing, renting or hiring services concerning pre-records, sound cassettes, compact disks and similar accessories.., The Service Account Code of this services is 997321 as per GST Act, 2017.
12. Leasing or rental services concerning video tapes and disks (Home entertainment equipment): This services includes leasing, renting or hiring services concerning prerecorded videotapes, CD’s and DVDs for use in home entertainment equipment, predominantly for home entertainment leasing renting or hiring services concerning video games.., The Service Account Code of this services is 997322 as per GST Act, 2017.
13. Leasing and rental services concerning furniture and other household appliances : This services includes leasing, renting or hiring services concerning furniture (incl. matters and mattress supports), household appliances whether or not electrical, such as refrigerators, washing machines, room air conditioners, fans, toasters, mixers, kitchen and table ware etc., crockery, cutlery and ornaments etc.., The Service Account Code of this services is 997323 as per GST Act, 2017.
14. Leasing or rental services concerning pleasure and leisure equipment: This services includes leasing, renting or hiring services concerning pleasure and leisure equipment such as bicycles, snow skis, ice skates, gliders, water sports equipment like(surfboards, water skis), pleasure crafts (canoes, sailboat and other pleasure boats) other sport equipment (Golf clubs, equipment for paying field games, racquet games etc) saddle-horses, camping equipment etc.,., The Service Account Code of this services is 997324 as per GST Act, 2017.
15. Leasing or rental services concerning household linen: This services includes leasing, renting or hiring services concerning household linen.., The Service Account Code of this services is 997325 as per GST Act, 2017.
16. Leasing or rental services concerning textiles, clothing and footwear: This service includes leasing or renting of textiles, clothing and footwear, formal wear, costumes, clothing and related accessories such as jewelry hats wigs etc., excluding uniform supply or cleaning services taxable in another Service Accounting Code., The Service Account Code of the above services is 997326 as per GST Act, 2017.
17. Leasing or rental services concerning do-it-yourself machinery and equipment: This services includes rental, easing or hiring services concerning machinery and equipment for home and garden use including lawnmowers, machinery and equipment used amateurs or as a hobby like tools for home repairs.., The Service Account Code of this services is 997327 as per GST Act, 2017.
18. Leasing or rental services concerning other goods: This services includes leasing or rental services books journals and magazines cameras, photo equipment, binoculars and other optical goods, flowers and plants, watches and clocks etc., musical instruments, medical equipment (crutches) and paramedical equipment, renting of equipment for parties and other social events such as weddings,., The Service Account Code of this services is 997329 as per GST Act, 2017.
19. Licensing services for “right to use “computer software and databases: This services includes licensing services for the right to reproduce, distribute or incorporate computer programs program description and supporting materials for both systems and applications software. This applies to various levels of licensing rights such as rights to reproduce and distribute the software, rights to use software components for the creation of and inclusion in other software products, Licensing services for the right to reproduce,, distribute or incorporate database (compilation of facts/information) in other databases or applications. This applies to various levels of licensing rights such as reproduce and distribute the database, rights to use database components for the creation of and inclusion in other databases and applications.

This services excludes packaged (non-customized) software/database, limited end-user license as part of packaged software ad licensing services for the right to use database software taxable in another SAC Code under GST Law, 2017.., The Service Account Code of this services is 997331 as per GST Act, 2017.

20. Licensing services for the right to broadcast and show original films, sound recordings, radio and television program etc: This services includes licensing service for the right to reproduce, distribute or incorporate entertainment musical such as broadcasting and showing of original films, sound recordings, radio and television programs, pre-recorded tapes and videos.., The Service Account Code of this services is 997332 as per GST Act, 2017.
21. Licensing services for the right to reproduce original art works: This service includes licensing services for the right to reproduce, distribute or incorporate artistic, originals such as reproduction of original artworks.., The Service Account Code of this services is 997333 as per GST Act, 2017.
22. Licensing services for the right to reprint and copy manuscripts books, journals and periodicals: This services includes licensing services for the right to reproduce, distribute or incorporate literary originals such as reprinting and copying of manuscripts, books, journals and periodicals.., The Service Account Code of this services is 997334 as per GST Act, 2017.
23. Licensing services for the right to use R&D products: This services includes licensing services for the right to use the outcome of research and development activities, i. e. inventions, such as constitutions of mater, processes, mechanisms, electrical and electronic circuits and devices, pharmaceutical formulations and new varieties of living things produced by artifice.., The Service Account Code of this services is 997335 as per GST Act, 2017.
24. Licensing services for the right to use trademarks and franchise: This services includes licenses services for the right to use trademarks ad to operate franchises.., The Service Account Code of this services is 997336 as per GST Act, 2017.
25. Licensing services for the right to use minerals including its exploration and evaluation: This service includes licensing services for the right use, mineral exploration and evaluation information, such as mineral exploration for petroleum, natural gas and non-petroleum deposits.., The Service Account Code of this services is 997337 as per GST Act, 2017.
26. Licensing services for the right to use other natural resources including telecommunication spectrum: This services includes licensing services for the right to use other natural resources like telecommunication spectrum.., The Service Account Code of this services is 997338 as per GST Act, 2017.
27. Licensing services for the rights to use other intellectual property products: This services includes licensing services for the right to use other kinds of intellectual property products such as architectural and engineering plans, industrial designs etc.,., The Service Account Code of this services is 997339 as per GST Act, 2017.

Requirement of registration under GST

As per Section 22 (1) of CGST Act, 2017 every supplier shall be liable to take registration in every State or UT from where he makes a taxable supply of goods /or services, if his aggregate turnover in a financial year exceeds threshold limit of Rs. 20 Lakhs or 10 Lakhs in Easter States.

Example for aggregate turnover:

(i). If any taxable person (PAN Based) is having business turnover Rs. 15 Lakhs and Rs. 6 lakhs rental income on immovable property liable to to take GST registration.

(ii)If any taxable person (PAN Based)is having tax business turnover Rs 13 Lakhs and Rs. 6Lakhs rental income on immovable property not require to take registration (Rs. 13 plus Rs. 6 lakhs = 19 Lakhs, no obligation to take registration.

(iii) Is any taxable person (PAN Based) is having Rs. 25 Lakhs business turnover and such business in “Individual Status “ as per Individual PAN Based he has to take registration for such business and income from immovable property belongs to (HUF PAN BASED) and turnover on immovable property of Rs. 6 lakhs, there is no obligation to take GST registration under HUF capacity.

(i) If providing only exempted services, GST registration is not require as per section 23 of CGST Act, 2017, like agriculture related services.

(ii) Benefit of threshold limit specified in Section 22 of the CGST ACT, 2017 is available, subject to compulsory registration un der Section 24 of CGST Act, 2017.

(iii) For the purpose of calculation of aggregate turnover we have to consider both the turnover (Taxable as well as exempted).

Input Tax Credit:

(i) Input Tax credit is available to the service providers who are having GST registration as per Sec. 22 & 24 of the CGST Act and claim ITC as per Sec. 16 of the CGST Act, 2017. Who are providing supply of services in relation to exempted services (Agricultural related services), such services providers are not allowed to claim Input Tax Credit.

(ii) Input Tax Credit shall be determined in accordance with rule 42 or 43 of the GST Rules, based upon taxable and exempted turnover.