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GST Exemption on Long-Term Lease of Industrial Plots and
Infrastructure Development
Introduction
The Goods and Services Tax (GST) law provides various
exemptions to promote industrial and infrastructure development in India. One
such exemption applies to the upfront amount payable for the long-term lease of
industrial plots or plots intended for infrastructure development in financial
business areas. This article explains the details of this exemption, including
the conditions under which it applies and its implications for industrial units
and developers.
Legal
Framework Under the Transfer of Property Act, 1882: A lease, as defined under Section 105 of the Transfer of
Property Act, is a transfer of a right to enjoy immovable property for a
specified period, in exchange for consideration, which is often in the form of
rent. This legal framework provides the foundation for all leasing agreements,
ensuring that the rights and obligations of both the lessor and the lessee are
clearly established.
Scope of Exemption
Heading 9972
under GST covers the service of granting a long-term lease of thirty years or
more. This service is primarily associated with industrial plots or plots
intended for infrastructure development in financial business areas. The
upfront amount, often referred to as a premium, salami, cost, price,
development charges, or by any other name, is exempt from GST under certain
conditions.
Eligible Entities
The exemption is available when the service is provided by
the following entities:
- State
Government Industrial Development Corporations or Undertakings: These are state-run entities responsible for promoting
industrial development.
- Other
Entities with Significant Government Ownership: Any entity in which the Central Government, State
Government, or Union territory holds 20% or more ownership, either
directly or through another entity wholly owned by the government,
qualifies for this exemption.
Beneficiaries
The primary beneficiaries of this exemption are:
- Industrial
Units: Businesses that are setting up
or expanding industrial operations.
- Developers: Entities involved in developing industrial or
financial business areas.
Conditions for Exemption
To avail of this GST exemption, the following conditions
must be met:
1.
Lease
Term: The lease must be for a period of
thirty years or more.
2.
Purpose: The lease must pertain to industrial plots or plots meant
for infrastructure development for financial businesses.
3.
Entity
Ownership: The service provider must be a
government entity or an entity with 20% or more government ownership.
Explanation of Ownership
For the purpose of this exemption, the ownership criteria
are quite specific:
- Direct
Ownership: The government must directly
hold 20% or more ownership in the entity providing the lease.
- Indirect
Ownership: The government may also hold
this ownership indirectly through another entity that is wholly owned by
the Central Government, State Government, or Union territory.
GST Implications
Under this exemption, the upfront amount paid for the lease
is Nil-rated, meaning no GST is payable. This reduces the financial
burden on industrial units and developers, making it more economical to acquire
plots for industrial or infrastructure development. The exemption is part of
the government's broader initiative to encourage industrial growth and
infrastructure development by reducing the tax incidence on essential services.
Conclusion
The GST exemption under Heading 9972 is a significant
benefit for industrial units and developers engaged in long-term infrastructure
projects. By exempting the upfront lease amount from GST, the government aims
to promote industrialization and the development of financial business areas.
Entities and developers should ensure they meet all the conditions to qualify
for this exemption and take full advantage of the benefits it offers.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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