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New GST notices on leasehold land transfers raise real estate concerns
Real Estate

New GST notices on leasehold land transfers raise real estate concerns

The issue of tax implications on transferring leasehold land has resurfaced, with authorities issuing notices to recover dues related to such transactions. This has sparked a significant debate within the real estate industry, as these developments are expected to affect future transactions and the broader market.

Recently, the Goods & Services Tax (GST) authorities have begun issuing notices regarding leasehold land transfers, raising the question of whether these transactions should be classified as a sale of land or as a service. The authorities argue that such transfers qualify as a service, making them subject to an 18% GST, in addition to the stamp duty already imposed by state governments. This creates a financial burden for those involved in these transactions.

In India, land parcels are often transferred on a leasehold basis by industrial development corporations and governmental bodies, with original leaseholders sometimes selling the land to new parties. The core debate revolves around whether these transactions should be considered land sales, which are traditionally exempt from GST, or services, which are taxable.

"Applying GST on these transactions would result in a dual levy of stamp duty and GST, leading to double taxation," explained Abhishek A Rastogi, Founder, Rastogi Chambers, who has filed a legal challenge in Maharashtra to test the constitutional validity of GST on such transfers.

Tax experts argue that leasehold land transfers are akin to the sale of land and should not be taxed under GST. They assert that since the leasehold interest is being transferred, it should be viewed as a sale of immovable property, exempt from GST. However, tax authorities maintain that these transactions represent the transfer of leasehold rights, categorizing them as a service subject to GST.

This dispute could have significant financial implications for businesses and individuals, potentially raising the cost of acquiring leasehold land and increasing project costs, which could be passed on to homebuyers. The notices are being issued to ensure compliance before the demands become time-barred. The resolution of this issue is likely to set a precedent for how similar transactions will be treated under the GST regime moving forward.

(ET)

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The issue of tax implications on transferring leasehold land has resurfaced, with authorities issuing notices to recover dues related to such transactions. This has sparked a significant debate within the real estate industry, as these developments are expected to affect future transactions and the broader market. Recently, the Goods & Services Tax (GST) authorities have begun issuing notices regarding leasehold land transfers, raising the question of whether these transactions should be classified as a sale of land or as a service. The authorities argue that such transfers qualify as a service, making them subject to an 18% GST, in addition to the stamp duty already imposed by state governments. This creates a financial burden for those involved in these transactions. In India, land parcels are often transferred on a leasehold basis by industrial development corporations and governmental bodies, with original leaseholders sometimes selling the land to new parties. The core debate revolves around whether these transactions should be considered land sales, which are traditionally exempt from GST, or services, which are taxable. Applying GST on these transactions would result in a dual levy of stamp duty and GST, leading to double taxation, explained Abhishek A Rastogi, Founder, Rastogi Chambers, who has filed a legal challenge in Maharashtra to test the constitutional validity of GST on such transfers. Tax experts argue that leasehold land transfers are akin to the sale of land and should not be taxed under GST. They assert that since the leasehold interest is being transferred, it should be viewed as a sale of immovable property, exempt from GST. However, tax authorities maintain that these transactions represent the transfer of leasehold rights, categorizing them as a service subject to GST. This dispute could have significant financial implications for businesses and individuals, potentially raising the cost of acquiring leasehold land and increasing project costs, which could be passed on to homebuyers. The notices are being issued to ensure compliance before the demands become time-barred. The resolution of this issue is likely to set a precedent for how similar transactions will be treated under the GST regime moving forward. (ET)

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