5 Reasons Why GST on Leasehold Land Transfers is Causing Major Debate in Indian Real Estate

The recent debate over the application of GST on leasehold land transfers has created significant concern in the real estate industry.

As authorities issue GST notices on transactions already subject to stamp duty, the question arises: should these transfers be treated as sales or services?

The outcome could have serious financial implications for developers, businesses, and homebuyers alike.

1. Double Taxation Concerns: A Growing Worry for Stakeholders

The transfer of leasehold land has sparked heated discussions within the real estate industry as GST notices are being issued on transactions already subject to state-imposed stamp duties. Industry experts are voicing concerns that this dual taxation could have far-reaching consequences, particularly on future transactions and the overall market. The core issue revolves around whether such transfers should be categorized as a sale or a service.

2. Leasehold Land Transfers: Sale or Service?

In India, land parcels are often transferred by industrial development corporations and governmental bodies to developers and corporates on long-term leasehold contracts. These lands, once transferred, can be sold by the original leaseholders to new buyers. However, the fundamental debate is whether these transfers should be treated as a sale, exempt from GST, or as a service, which would attract an 18% GST. This classification remains at the heart of the dispute.

3. Tax Experts Warn Against Double Taxation

GST authorities have argued that leasehold rights transfers fall under the definition of a service, thereby subjecting them to GST. However, tax experts disagree, contending that such transactions are akin to the sale of land, which has traditionally been exempt from GST. If the GST is applied, it would result in both GST and stamp duty being levied on the same transaction, leading to a cascading tax effect, which contradicts the intended framework of GST.

4. Legal Action Challenges GST Applicability

The legal battle has already begun, with notable individuals like Rastogi filing petitions in the courts of Maharashtra to contest the constitutionality of GST on leasehold land transfers. Stakeholders hope this legal intervention will lead to a fair resolution, preventing the adverse impacts of double taxation on businesses and individuals involved in such transactions.

5. Impact on Property Costs and Homebuyers

If the current GST notices hold, the added tax burden could significantly increase the cost of acquiring leasehold land. For developers, this could translate into higher project costs, which may ultimately be passed on to homebuyers, making properties more expensive. With time-sensitive notices issued to avoid limitations, the resolution of this issue is likely to shape future transactions under the GST regime.