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?

[Alkesh Jani]

Sir/Madam,

In my point of view, the reply is as follows:-

1. Deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply i.e. to say if the said deposit will be appropriated against the pending rent, then GST is applicable.

2. Renting of immovable property is a “Service” and no market value can be ascertain, if that is the done than charge for Filing of GST returns by different person in same city differs and then the highly charged may be considered as the market value and poor taxpayer has borne GST on the highest paid. Sorry not acceptable.

Hope this may clear your other query also. Our experts may correct me if mistaken.

[YAGAY andSUN]

In our view also Deposit cannot be treated as lease rent until unless rent is being adjusted from this kind of deposit.

Since, you are under the threshold limit and in our view are not require to get yourselves registered under GST laws.

AI Summary

GST on lease deposits: taxable if appropriated as consideration, with related-party valuation risk and registration implications. A deposit received for lease is not taxable unless the supplier appropriates the deposit as consideration for the supply; renting immovable property is a service and lease rentals are taxable. Related-party leases may be subject to open market valuation rules, creating valuation risk where contract rents or large refundable deposits differ from market norms. Registration depends on taxable turnover exceeding the statutory threshold; refundable deposits not applied as consideration do not constitute taxable turnover.