Tenant is a person who acquires possession of a property in lieu of paying rent to the owner of the property. There is an agreement executed between the tenant and the landlord or owner of the property which is binding on both of them. This agreement writes down the various rights and obligations of the tenant and the landlord in various circumstances. One of such right which may be extended to a tenant is the tenancy right in the property.
Tenancy Right
This is a right apart from right to live or use the property, through which tenant can transfer the right to live or use the property to any other third party. This right is tranferred in return of a consideration which is known as Tenancy Premium. This system is called Pagdi System in some part of India.
Tenancy Premium is the consideration received for transfer of the tenancy right in the property. It can also be paid by the owner of the property to the tenant to vacate the property before the term agreed upon in the agreement.
GST Provisions on transfer of Tenancy Right
As per the defination of Supply in GST Act, supply includes lease, tenancy, easement, license to occupy the land, etc. Thus, transfer of tenancy right is also a supply under GST regime.
So, GST will be attracted on transfer of tenancy rights. Merely that this transaction attracts stamp duty and registration charges involving execution of documents, it doesn’t mean GST will not b leviable. Since stamp duty and registration charges are not the sole factors to decide whether a transaction is a sale of land or property or not.
GST shall be leviable on all transactions of transfer of tenancy rights for tenancy premium, except when right is transferred of residential property for residential purpose, which is exempt.
Thus if tenancy right is transferred by tenant of a residential property for use for residential purpose, same will be exempt. But if tenancy premium is paid by owner of a residential property to tenant to vacate the property, same shall be taxable. Thus exemption is provided only in respect of residential property for use as a residence and that too when right is transferred by tenant.
