Implication of GST on Lease Rent

[Deepa Praveen]

Facts:

ABC Medical Sciences is a Partnership Firm engaged in Health Care Services.

A new Company, PQR Healthcare Co Pvt. Ltd has been formed as a Private Limited Company , for the management of ABC Medical Sciences. All the partners of ABC Medical Science are either directors or major shareholders of the new company.

PQR Healthcare Co Pvt. Ltd is willing to enter into an agreement with ABC Medical Science whereby PQR Healthcare Co Pvt. Ltd shall takeover Plant & Machinery and Land of ABC Medical Science, having market value of ₹ 40 crores at a monthly lease rent of ₹ 1.5 lakhs, in addition to interest free refundable Lease Rent Deposit of ₹ 20 crores for a minimum lease period of 25 years repayable, at the end of the lease period.

Issue:

1. Will the transaction of accepting Lease Rent Deposit by PQR Healthcare Co Pvt. Ltd for the management of ABC Medical Sciences , come under purview of GST?

1. As all or most of the partners of ABC Medical Sciences are either directors or major shareholders in PQR Healthcare Co Pvt. Ltd, does the transaction of lease rent come under transaction between related persons under Section 25 of GST Act?

1. Under GST, value of supply with respect to transaction between related parties, is valued at open market value. In the given facts of the case, as the monthly lease rent being charged is

₹ 1.50 Lakhs only, Can there be a chance of litigation in future with respect to value of supply?

Does acceptance of lease rent deposit of ₹ 20 crore which is nearly 50% of the market value of asset to be leased, justify the lower lease rent.

1. Should ABC Medical Sciences go for GST registration , as the turnover of KIMS is only from Lease Rent which is less than threshold limit of ₹ 20 Lakhs?

AI Summary

ABC Medical Sciences leases assets to PQR Healthcare; key issues on GST under Section 25 and potential litigation. ABC Medical Sciences, a partnership firm in healthcare, plans to lease its plant, machinery, and land to PQR Healthcare Co Pvt. Ltd, a company formed by its partners. The lease involves a monthly rent of 1.5 lakhs and a refundable deposit of 20 crores for 25 years. Key issues include whether the lease deposit falls under GST, if the transaction is between related parties under GST Act Section 25, and the potential for litigation due to the low lease rent. Responses indicate that deposits are not considered lease rent unless adjusted as such, and GST registration may not be required given the turnover threshold.