Leasing of land and buildings: the exemption boundary
Sale of land is outside GST. A lease of land is not. Everything turns on which side of that line the transaction sits.
The sale of land is outside GST under Entry 5 of Schedule III. A lease, tenancy, easement or licence to occupy land is a supply of service under Entry 2(a) of Schedule II and is taxable, subject to specific exemptions including renting of residential dwellings for use as a residence and specified long term leases of industrial plots by government entities. Upfront premium on a long term industrial lease is the subject of a specific exemption entry with its own conditions, and the boundary is heavily litigated.
The categories
Sale of land, and sale of a completed building: outside GST.
Lease or licence of commercial premises: taxable at the standard rate, with credit available to the lessor subject to Section 17(5)(d) as amended.
Renting of residential dwelling for use as a residence: exempt, with the reverse charge position for a registered recipient to be applied as notified, which changed the position for companies taking residential accommodation.
Long term lease of industrial plots or plots for infrastructure development by a State Government industrial development corporation or undertaking, or by an entity with the specified government equity, against upfront amount: covered by a specific exemption entry with conditions on the lessor's constitution and the use of the plot.
Lease of agricultural land, and specified leases for agricultural purposes: covered by their own entries.
The disputes
Whether the lessor satisfies the equity or control condition in the industrial plot exemption, which requires the shareholding pattern at the relevant time.
Whether an assignment or transfer of leasehold rights by a lessee to a third party is a taxable supply of service or a transfer of an interest in immovable property. This has produced conflicting decisions and a significant volume of litigation, and the position must be verified against the current authority.
Whether an upfront premium and the annual lease rent are treated alike, since the exemption entry speaks of upfront amount.
Residential accommodation taken by a company for its employees, where the exemption and the reverse charge entry interact.
Renting of a building along with plant and machinery or with services, where the composite supply analysis applies.
The practical approach
Classify each arrangement precisely: sale, lease, licence, assignment, or a composite supply with services.
For an industrial plot exemption, obtain and keep the lessor's shareholding evidence at the date of the lease.
For an assignment of leasehold rights, take advice on the current state of authority before structuring, because the amounts are usually large and the position has moved.
For residential accommodation, document the use as a residence and the recipient's registration status, because both matter.
What to do on Monday
Classify every land and building arrangement precisely before drafting.
Collect the lessor's constitution and shareholding evidence for any industrial plot exemption claimed.
Take advice on the current authority before any assignment of leasehold rights.
Document residential use and recipient registration for residential renting.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Is a long term lease equivalent to a sale?
Not for GST. A lease is a supply of service under Schedule II irrespective of its duration, subject to the specific exemption entries.
Is the upfront premium on an industrial plot exempt?
Where the lessor and the plot satisfy the conditions of the exemption entry, yes. Verify the lessor's constitution and equity at the relevant date.
Is assignment of leasehold rights taxable?
Contested, with conflicting decisions. Take advice on the current authority before structuring a transaction.
Is renting a flat to a company exempt?
The exemption is for renting of a residential dwelling for use as a residence, and the reverse charge entry for registered recipients must be applied as notified. Document the use.
Can a lessor claim credit on the building?
After the retrospective substitution in Section 17(5)(d), the position is restrictive. The plant and machinery bifurcation is the remaining argument.
In this cluster
- GST on real estate: the complete developer position
- Munjaal Manishbhai Bhatt: the one third land deduction is optional, not mandatory
- Joint development agreements: who pays, when, and on what value
- Transfer of development rights: the exemption and its conditions
- Works contracts under GST: classification, rate and the credit position
- Government contracts, escalation clauses and rate changes
- ITC restriction under Section 17(5)(c) and (d) for construction
- Preferential location charges, club charges and society transfer fees
- Affordable housing at one percent: the conditions that decide eligibility
- Redevelopment, slum rehabilitation and the value of free flats
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.