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By Sandip N. Vimadalal, Advocate & Solicitor and assisted by Ritabh Singh, Articled Clerk| Sept 3, 2023


1. There is lot of ambiguity and unawareness in the minds of tax and legal practitioners and parties involved, about the applicability of Goods and Service Tax (“GST”) in respect of transactions relating to tenanted premises (residential and non-residential) under the provisions of The Central Goods and Service Tax Act, 2017 (“the Act”) and the Notifications, Circulars etc. issued under the Act.

2. Generally, transactions with respect to tenanted premises are:-

(i) Surrender of tenancy rights by the tenant to the landlords, whereby the tenant surrendering the tenancy rights receives the consideration.

(ii) Transfer of tenancy rights by the outgoing tenant in favour of the incoming tenant with the consent of the landlord, wherein the incoming tenant is paying consideration to the outgoing tenant as also to the landlord.

(iii) Creation of fresh tenancy in respect of the premises by the landlord in favour of the tenant against payment of premium/consideration.

The above transactions take place by execution and registration of certain writings such as Surrender Deed, Deed of Transfer of Tenancy Rights, Agreement for Tenancy etc.


3. It is necessary to examine certain provisions of the Act as also Notifications/Circulars issued under the Act.

(A) Section 7 of the Act defines “Supply” as follows:-

“7(1) For the purposes of this Act, the expression “supply”

(a) all forms of supply of goods or 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;

(b) ………………….; and

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.”

(B) Item 2 of Schedule II of the Act prescribes “tenancy” as “supply of services” which is as follows:

“2. Land and Building

(a) any lease, tenancy, easement, license to occupy land is a supply of services;

(b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services”.

Thus, any lease, tenancy, easement, license to occupy land or building is a supply of services.

(C)(i) Central Board of Indirect Taxes and Customs (“CBIC”) has clarified that transfer of tenancy rights against the consideration in the form of tenancy premium is a supply of service liable to GST as the same is in form of lease or renting of immovable property which is declared to be a service under item 2 of Schedule II the Act. It is further clarified that though transfer of tenancy rights is subject to stamp duty and registration charges, however, it would not preclude the transaction from the scope of “supply” and from payment of GST. Thus, it cannot be treated as sale of land or building in terms of item 5 of Schedule III of the Act.

(ii) The last three lines of para 5 of the said clarification [1] makes specific reference that “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”.

(D)(i) Entry at SL No. 12 of Notification No. 12/2017 – Central Tax (Rate) dated 28th June, 2017 [2] issued by Government of India, Ministry of Finance (Department of Revenue) reads as under:-

(ii) Thus, the services as referred above are exempted.


4. The activity of transfer of tenancy right or creation of tenancy right (which also includes lease, tenancy, easement and license) against consideration in the form of tenancy premium is a supply of service liable to GST.

5. The surrender of tenancy rights where landlord pays premium to the tenant for giving up the right to use/occupy the premises is considered as giving up of right in the property which may attract GST. However, it can be well argued that surrender of tenancy rights does not fall within the scope of the expression “Supply” referred in Section 7(1)(a) of the Act.

6. The term “residential dwelling” in terms of the normal trade parlance, as per which it is a residential accommodation, but does not include hotel, motel, inn, guest house, camp-site, lodge, house boat, or like places meant for temporary stay. Therefore it could be inferred that a residential dwelling is a residential accommodation meant for permanent or longer stay and does not include guest house, lodge or like places [3].

7. The service by way of renting of residential dwelling for use as residence is exempt except where the residence dwelling is rented to a registered person. The registered person is a supplier having an aggregate taxable supply of goods or services exceeding Rs. 20 lakhs [4]. The effect of explanation to Entry at SL No. 12 is as under:-

(a) “A” has rented residential dwelling to “B” who is an unregistered person under the Act. This transaction is exempted from GST.

(b) “A” has rented a residential dwelling to “B”, who is a registered person. If the registered person is an individual and can show that the residential unit is taken in his personal capacity for use as his own residence and the payment for the rent is made on his own account, it can be contended that such transaction is exempted from applicability of GST, for e.g.

(c) “A” has rented residential dwelling to M/s. XYZ, a proprietary firm of “B” and which firm is a registered person. This is transaction is not exempted from GST.

(d) However, in the event “A” has rented residential dwelling to “B” (who is also the proprietor of M/s. XYZ, a registered entity) but such renting is on the personal capacity of “B” for his own residence and not that of his proprietary concern, such renting is exempted from GST provided nothing on account of the proprietary firm is being undertaken from such residential dwelling.

8. The services provided by outgoing tenant by way of surrendering the tenancy rights against consideration (either to the landlord or to the incoming tenant or to both), irrespective whether it is residential or non-residential, may be liable to GST.

9. (i) It can also be contended that the person letting out the premises to students for residential use (hostel) will not fall within the meaning of “services by way of renting of residential dwelling for use as residence” contemplated under SL No. 12 of Service exemption notification dated 28th June, 2017 [5].

(ii) Under entry at SL No. 13 as referred in the said Notification No. 12/2017, renting of certain premises by charitable or religious trust as referred therein below the prescribed limit are exempted from GST.

10. The supply of services referred in item Nos. (4), (5) and (8) above shall be liable to GST PROVIDED the same is by a person in the course or furtherance of business.


11. (i) Section 2 (17) of the Act defines “business” as under:-

“(17) “business” includes –

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a)” [6];

(ii) The GST shall be applicable on the “supply” of services provided the same are “in the course or furtherance of business”.

(iii) If the supply of services is not directly or incidentally in the course of furtherance of business, it will not attract GST.

(iv) In the case of M/s. Panacea Biotech Ltd. Vs. Commissioner of Trade and Taxes [7] it has been observed by the Hon’ble Delhi High Court that “But the selling of used cars cannot by any stretch of the imagination be characterized as “ancillary” or incidental to the business of a pharmaceutical company. It is not shown that the cars were of a special character e.g. air conditioned vehicles especially designed to store and ferry pharmacy products”. It was further observed “However, the assesse never held them for the purpose of sale and purchase but for using them. After their use, having regard to lapse of time, and their wear and tear, the assesse decided to replace them. These cars were then sold. Their sales in a sense are twice removed from the business of the Assesse. They can not be call “incidental” or “ancillary” to the manufacture and sale of pharmaceutical products, which the assesse is engaged in.”

(v) CBIC has by its press release dated 13-07-2017 stated that “Even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply per se”.

(vi) The isolated transactions of tenancy (such as surrender of tenancy, transfer of tenancy) by the supplier who is not in the business of buying and selling of tenancy rights (irrespective of whether it is residential or non-residential) may not be considered as in the course or furtherance of business and should not attract GST. This is an arguable issue which depends on the facts and circumstances of each case.

(vii) If the owner/landlord (“supplier”) has let out many premises in the building to various parties, it may be considered in the course or furtherance of business.

(viii) If the owner buys one or more properties and in turn lets it out, the transaction may be considered in the course or furtherance of business.

(ix) The tenant who is not engaged in the business of acquiring and transferring/surrendering tenancy rights, surrendering the tenancy rights may not be termed as “in the course of business” of the tenant.


12. (a) An important issue arose before the Authority for Advance Ruling, GST [8] wherein the Applicant [9] brought up the issue of “Whether the Value to be adopted (for payment of GST/Central Tax) is the guidance value (i.e. Ready Reckoner Value) or sale consideration, particularly when guidance value fixed by the local authority is more than sale value”. It has been interalia observed and ruled by the Authority as under:-

(i) As per Section 15(1) of the Act the value of supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both, including the non-monetary consideration, if any, where the supplier and the recipient of the supply are not related and the price is sole consideration for supply.

(ii) From the above, it is clear that the Act contemplates to treat the transaction value as the value of supply unless the same is rejected and the value determined as per Section 15 of the Act. It does not contemplate to consider a guidance value prescribed under another legislation to be deemed to be the value of the supply, unless the transaction value itself is disputed and found not acceptable under Section 15 of the Act. In the latter case, the determination of the value of such supply shall be made as per the provisions of Section 15 of the Act.

(b) Explanation under Section 15 of the Act describes the related persons.

(c) Thus, the value of Supply of Goods or Services shall be on the transaction value (and not the guidance value or ready reckoner value) PROVIDED the recipients of the supply are not related and the price is the sole consideration for supply.


(i) As discussed above, certain transactions in respect of residential tenanted premises are exempted from applicability of GST and certain transactions are not.

(ii) The provisions in respect of commercial tenanted premises need careful application of mind considering the facts and circumstances of the transaction to conclude if GST is applicable on the same or not.

(iii) Lastly, GST is applicable on the transaction value mentioned in the instrument and not on the guidance value unless the parties are related persons.

[1] vide Circular No. 44/18/2018-CGST dated 02-05-2018

[2] read with Circular No. 44/18/2018 – CGST dated 2nd May, 2018; Notification Nos. 04 and 05 of 2022 CT (Rate) dated 13th July, 2022; and Notification No. 15/2022 CT (Rate)

[3] as observed by the Authority for advance ruling in KAR ADRG 25/2023 dated 13-07-2023

[4] Ref: Section 2(94), Section 22 to 25 of the Act

[5] as also observed and held by The Authority for Advance Ruling, GST in the case of Srisai Luxurious Stay LLP (No. KAR.ADRG 25/2023 dated 13th July 2023)

[6] Sub-sections (a) and (b) of Section 17 of the Act are almost similar to the definition of “business” under Delhi Sales Tax Act, 1975

[7] WP (C) No. 4717/2011 & CM No. 9555/2011

[8] under KAR ADRG 09/2022 dated 14-03-2022

[9] M/s. Pankaj Enterprises