Some major companies have recently moved towards legal proceedings in court to seek permission for revoking or making a credit claim against GST on long-term land lease deals. Many tax experts, on this matter, have suggested that if a particular recipient in the long-term land lease deal decides to build a commercial building on the same, then he cannot claim an input tax credit against the GST paid for the same.

One of the tax experts at Khaitan & Co. suggested that “The recipient has to bear 18% GST for various long term lease agreements. Due to the absence of provision of credit, it becomes a cost. We have challenged not getting credit, especially when the output supply is taxable, for example, a hotel or any other commercial property.”

Currently, 18% of GST is charged on long term lease transactions by the government, which has been strongly opposed by many companies.

Recently, some of the companies in Rajasthan have filed a petition in the Rajasthan High Court demanding that GST should be removed from the long-term land lease deals or they should be allowed to claim a tax credit against the same. For long-term lease deal of 99 years, GST is levied. In most of the cases, the land leased in such long-term deals belongs to the government and is offered to build a hotel or port.

In the current case, the question arises whether the lease payment received by the government against land provided to the recipient for the purpose of building a hotel or port, is a tax input or not? Some companies have argued that leasing should be considered as an input for which ITC can be claimed.

As per the current GST framework, in order to claim an input tax credit (ITC), the companies must prove that they have paid tax against raw material used to build the final product. ITC is a mechanism under the GST system, in which a portion of the tax paid on raw material can be used in lieu of future tax liabilities.

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