GST on Leasehold Rights Transfers: Legal Insights & Business Impact

Introduction

The applicability of GST on leasehold rights transfers has sparked debate in the taxation landscape. A recent Gujarat High Court ruling has provided relief to businesses by ruling that GST is not applicable on the transfer of leasehold rights. However, the government is now considering a Special Leave Petition (SLP) in the Supreme Court to challenge this verdict.

This article explains the legal developments, government response, and its impact on businesses.

Understanding Leasehold Rights & GST

• Leasehold rights refer to a party’s right to use land or property for a specific period, granted by the government or private entities.
• Traditionally, stamp duty applies to such transactions as they fall under immovable property.
• However, tax authorities sought to impose GST at 18% on these transfers, treating them as a “supply of services.”
• This led to disputes over whether GST should apply to the transfer of leasehold rights.

Gujarat High Court Ruling: A Relief for Businesses

In January 2025, the Gujarat High Court ruled that GST does not apply to the transfer of leasehold rights when land is granted by a government entity.

Key Observations by the Court:

1. Leasehold rights = Immovable Property
   The court held that leasehold rights over land fall under the category of immovable property, which is outside the scope of GST under the CGST Act.
2. Not a “Supply of Services”
   The transfer of leasehold rights does not constitute a service under GST, making the tax inapplicable.
3. Direct Relief to Businesses
   The ruling eliminates the 18% GST burden on companies engaged in industrial land transactions, particularly those dealing with government-leased land.

Government’s Response: Plans to Challenge the Ruling

Despite the High Court’s verdict, the finance ministry is considering an SLP (Special Leave Petition) before the Supreme Court. The key reasons behind this move:

• Revenue Concerns: The government fears potential revenue loss if leasehold transfers are exempt from GST.
• Uniform Taxation Approach: Authorities want to ensure consistency in tax treatment for similar transactions across India.
• Clarification on Taxability: The case may set a precedent for future GST disputes related to immovable property.

If the Supreme Court overturns the Gujarat HC ruling, businesses may face GST liabilities on past and future transactions.

Impact on Businesses & Taxpayers

This ruling has significant implications for businesses involved in industrial land transactions:

✅ Tax Savings: Businesses that were paying 18% GST on leasehold transfers may benefit if the ruling holds.

✅ Refund Possibilities: Companies that have already paid GST on past transactions may explore refund claims based on this ruling.

⚠️ Legal Uncertainty: If the government’s SLP is admitted, businesses must wait for the Supreme Court’s decision before making key financial moves.

⚠️ Sector-Specific Impact: Industries relying on long-term government land leases, such as manufacturing and logistics, may be directly affected.

What Businesses Should Do Next

1. Review Past Transactions
   Check if GST was paid on leasehold rights transfers and consult professionals regarding refund claims.
2. Monitor Legal Updates
   Stay informed about the Supreme Court’s stance on this issue, as it could reverse or uphold the Gujarat HC decision.
3. Seek Professional Advice
   Businesses should consult tax experts to understand the impact of the ruling and prepare for possible regulatory changes.

Conclusion

The Gujarat High Court ruling offers temporary relief to businesses by removing GST on leasehold rights transfers. However, with the government planning to challenge the verdict, uncertainty remains.

For now, companies should stay updated, assess their GST obligations, and be prepared for potential legal changes.