Central Board of Indirect Taxes and Customs ( CBIC ), today , vide Circular No.44/18/2018-CGST, dated 2nd May,2018 clarified Issue related to taxability of ‘tenancy rights’ under GST.
It clarified that services provided by the outgoing tenant by way of surrendering the Tenancy Rights against consideration in the form of a portion of tenancy premium are liable to GST. Following are the extracts from the circular:-
Doubts have been raised as to,-
(i) Whether transfer of tenancy rights to an incoming tenant, consideration for which is in
form of tenancy premium, shall attract GST when stamp duty and registration charges is
levied on the said premium, if yes what would be the applicable rate?
(ii) Further, in case of transfer of tenancy rights, a part of the consideration for such
transfer accrues to the outgoing tenant, whether such supplies will also attract GST?
1. The issue has been examined. 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(pagadi). The
landlord may be owner of the property but the possession of the same lies with the tenant. The
tenant pays periodic rent to the landlord as long as he occupies the property. The tenant also
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. Such properties in Maharashtra are governed by Maharashtra Rent Control Act, 1999.
2. As per section 9(1) of the CGST Act there shall be levied central tax on the intra-State
supplies of services. The scope of supply includes all forms of supply of goods and services or
both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to
be made for a consideration by a person in the course or furtherance of business and also includes
the activities specified in Schedule II. The activity of transfer of tenancy right against
consideration in the form of tenancy premium is a supply of service 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 services
3. The contention that stamp duty and registration charges is levied on such transfers of
tenancy rights, and such transaction thus should not be subjected to GST, is not relevant. Merely
because a transaction or a supply involves execution of documents which may require registration
and payment of registration fee and stamp duty, would not preclude them from the scope of
supply of goods and services and from payment of GST. The transfer of tenancy rights cannot be
treated as sale of land or building declared as neither a supply of goods nor of services in para 5
of Schedule III to CGST Act, 2017. Thus a consideration for the said activity shall attract levy of
4. To sum up, the activity of transfer of ‘tenancy rights’ is squarely covered under the scope
of supply and taxable per-se. Transfer of tenancy rights to a new tenant against consideration in
the form of tenancy premium is taxable. However, renting of residential dwelling for use as a
residence is exempt[Sl. No. 12 of notification No. 12/2017-Central Tax(Rate)]. Hence, grant of
tenancy rights in a residential dwelling for use as residence dwelling against tenancy premium or
periodic rent or both is exempt. As regards services provided by outgoing tenant by way of
surrendering the tenancy rights against consideration in the form of a portion of tenancy premium
is liable to GST.