Immovable property given on lease

[VIGNESH]

Sir.One person leases his commercial building for a long term lease of 15 years for an amount of Rs 10 lakhs. Whether there is any GST liability for the amount on the part of lessor and lessee. If payable whether it is payable in the first year itself or over a period of 15 years on proportionate basis?.GST rate for the above activity? Can you please clarify.

[Amit Agrawal]

Facts are not clear.

It is presumed that lessor has got entire rent of Rs. 10 Lac for 15 years at start of lease itself as per terms of contract and lessor is either registered under GST or required to be registered under GST.

And if so, GST @ 18% is payable by lessor on forward charge basis on entire rent of Rs. 10 Lac at the time of receipt of such payment itself.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[VIGNESH]

Sir. The Lessor is already a registered person under GST. The lease amount is received upfront for 10years. Thank u sir. but why shouldn't the lease amount be taken proportionately over 10 years and taxed. pls give any provision which restricts me to do

[KASTURI SETHI]

Pl. treat it as advance amount. I agree with Sh.Amit Agrawal, Sir.

[Amit Agrawal]

Kindly refer to sub-section (1) & 2 (a) of Section 13 of the CGST Act, 2017 read with explanation (i) under sub-section (2).

[VIGNESH]

Thank u Experts & Seniors. Sir i will summarise my understanding. Lease amount received will be subject to tax for the amount received in the year of receipt and the lease amount will be proportionately taken for 15 years and offered as income each year for income tax and gst. The balance amount for which GST already paid will be treated as advance and adjusted each year.

[Amit Agrawal]

Upfront payment need not necessarily be 'advance' for paying GST. One need to check contract-terms to know its nature.

If contract for lease of 15 years obligates lessee to pay entire consideration upfront, such payment so done will not be 'advance' from GST point of view. And if so, there is no question of proportionate disclosure of rent under GST over 15 years.

And due to reasoning given in my earlier posts, GST on entire consideration (i.e. rent for 15 years) will be payable immediately upon receipt of the consideration after raising tax-invoice of Rs. 10 Lac (i.e. for entire rent for 15 years) plus GST (& disclosure such rent only one-time under GST).

However, contract-terms are as such that said 10 Lac is either 'advance' or 'deposit', then, tax-treatment / disclosure will be different under GST (& same is different for 'advance' & 'deposit').

P.S. As I do not deal with income tax, I cannot comment upon treatment to be given under income tax.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

I agree with the views of Sh.Amit Agrawal Sir, to the extent that whether the above said amount is equal to 'ADVANCE' or not, depends upon the terms & conditions of the contract.

AI Summary

GST on upfront lease payments must be paid on receipt when consideration covers the entire lease term, not prorated.
If a registered lessor receives the entire lease consideration upfront and the contract obliges payment, the full consideration is treated as supply consideration and GST is payable immediately on receipt upon issuance of tax invoice. Characterisation as advance or deposit depends on contract terms and carries different GST disclosure and tax consequences; income-tax treatment is distinct.