Surrender of tenancy rights against consideration liable to GST
Department of Revenue has issued a Circular No – 44/18/2018-CGST dated 2nd May, 2018 to clarify issue relating to taxability of ‘tenancy rights’ under GST.
The Key Points of the Circular are
- The transfer of tenancy rights against tenancy premium which 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. The tenant usually has the option to sell the tenancy right of the said property and in such a case has to share a 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 property vacated.
- It has been clarified that the activity of transfer of tenancy right against consideration in the form of tenancy premium is a supply of service and liable to GST. It is a form of lease or renting of property and such activity is specifically declared to be a service in para 2 of Schedule II i.e. any lease, tenancy, easement, licence to occupy land is a supply of service.
- The transfer of tenancy rights cannot be treated as sale of land or building declared as neither a supply of goods nor of services, thus a consideration for the said activity shall attract levy of GST.
- Since, renting of residential dwelling for use as a residence is exempt, grant of tenancy rights in a residential dwelling for use as residence dwelling against tenancy premium or periodic rent or both is also exempt.