February 20, 2023

Lease of Land and Issues in GST

Leasing land can be a complex issue for businesses, especially when it comes to the Goods and Services Tax (GST). In this article, we will explore the various aspects of land lease and the challenges that businesses face when it comes to GST.

What is a lease of land?

A lease of land is a contractual agreement between the owner of the land (the lessor) and the tenant (the lessee) for a specific period of time. The lessee has the right to use the land for a variety of purposes, such as building a factory or a warehouse. The lessor, in turn, receives rent from the lessee for the use of the land.

Lease of land and GST

The GST is a consumption tax that is levied on the supply of goods and services. When it comes to land lease, there are two types of transactions that can be subject to GST:

1. Lease of land for commercial purposes

2. Lease of residential land for the purpose of running a business

When a business leases land for commercial purposes, the lease is considered a supply of services and is subject to GST. The GST rate for lease of land is 18%. However, if the lease is for residential purposes, it is exempt from GST.

Issues in GST

Input tax credit

One of the biggest issues that businesses face when it comes to land lease and GST is the input tax credit. When a business pays GST on the lease of land, it can claim input tax credit on the GST paid. However, if the business uses the land for non-taxable supplies, it cannot claim input tax credit.

Continuous supply of services

Another issue that businesses face is the continuous supply of services. In the case of land lease, the lease is generally for a long period of time, and the rent is paid periodically. This means that the lease is a continuous supply of services, and GST is levied on each payment of rent.

Valuation of lease

The valuation of the lease can also be a challenge for businesses. The GST is levied on the transaction value, which is the total amount of rent paid for the lease of land. However, the transaction value may not be clear in the case of land lease, as there may be other charges associated with the lease, such as maintenance charges or security charges.


Lease of land and GST can be a complex issue for businesses. It is important for businesses to understand the various aspects of land lease and the challenges they may face when it comes to GST. By understanding these issues, businesses can take steps to ensure that they comply with GST regulations and minimize their tax liability.


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