The Central Board of Indirect Taxes and Customs ( CBIC ), today, 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.
It is further clarified that transfer of tenancy rights to a new tenant against consideration in the form of tenancy premium is also taxable.
The Circular issued by the CBIC stated that the activity of transfer of tenancy right against consideration in the form of tenancy premium is a supply of service liable to GST. It further asserted that 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. The Circular also referred Section 9(1) of the Central Goods and Services Tax, 2017 according to which it is stated that there shall be levied central tax on the intra-supplies of services and that the scope of supplies 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 Circular further explained that merely because 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.
However, the Circular made it clear that grant of tenancy rights in a residential dwelling for use as residence dwelling against tenancy premium or periodic rent or both is exempt.
The Transfer of tenancy right against tenancy premium is a system prevalent in some States. In this system (Pagadi System) the tenant acquires tenancy rights in the property by payment of tenancy premium (Pagadi). Even though the landlord is the owner, the tenant will have possession of the property by paying periodic rents to the landlord. 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 the 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.
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