The Indian real estate industry was again in a pinch, the reason being this time a path of Goods and Services Tax (GST) notices of the tax authorities in matters concerning transferring the leasehold land. Such transfer must be inside GST and to pay 18% GST on such transfers which will be regarded as service supply.
Not only has the problem caused confusion among the developers and investors, but it has sparked a row of legal challenges as well. Various High Courts in different states have begun to intervene, and most of them have decided in favour of the real estate industry. Nonetheless, it is yet to get a conclusive decision leaving the industry with jitters.
What Is Leasehold Land?
Leasehold land is that land which is leased by a government authority e.g. DDA-Delhi Development Authority, HUDA-Haryana Urban Development Authority, NOIDA Authority etc. to individuals/ companies under a long term lease normally of 30 to 99 years.
In this kind of arrangement, the actual right enjoyed by the lessee is the right to use and take advantage of even selling the leasehold interest of land on the land itself whereas the right to ownership remains with the authority. transferring the rights to a third party is termed as an assignment or transfer of leasehold land.
Why Are GST Notices Being Issued?
Recently though, transfer of leasehold rights, especially that of long term leases have been seen to be in general terms the same as the sale of land and thus not liable to GST. According to section 7 of Schedule III of the Central Goods and Services Tax (CGST) Act, 2017, the sale of land is not deemed to constitute a supply of goods or services and shall therefore be beyond the scope of GST.
But the GST authorities have begun issuing show-cause notices on the ground that transfer of the leasehold rights is not the sale of land but an act of taxable supply of service on which 18 per cent GST is charged. Such announcements are not only to be applied to new transactions but retroactively, several years prior.
This sudden shift in interpretation has alarmed developers, investors, and buyers alike.
Legal Standpoint and Recent Court Rulings
The growing number of legal disputes over this issue has led to several High Court interventions. Here is how the judiciary has responded:
Gujarat High Court
In multiple rulings from January to July 2025, the Gujarat High Court has clearly held that the transfer of long-term leasehold rights is akin to the sale of land, and therefore not subject to GST. The court stated that such transfers do not fall under the definition of “supply” as intended in the GST Act.
This position was reaffirmed in various cases involving leasehold land allotments by industrial development authorities such as GIDC (Gujarat Industrial Development Corporation). The court emphasized that these transactions are part of immovable property dealings and are excluded from GST under Schedule III.
Bombay High Court and Allahabad High Court
Other courts, including the Bombay and Allahabad High Courts, have granted interim relief to companies challenging the tax notices. These courts observed that the issue involves serious legal interpretation and stayed any recovery action until further hearings.
Common Legal Argument
The core legal reasoning behind these rulings is that:
- A long-term lease assignment closely resembles the sale of land.
- Stamp duty is already paid on such transfers, much like in a sale.
- Under Schedule III of the CGST Act, land transactions are not “supply” under GST law.
- Therefore, GST should not be levied on these leasehold transfers.
Real Estate Industry Reaction
Developers and real estate associations have expressed strong opposition to the GST notices, claiming that the sudden change in interpretation is unfair, retrospective in nature, and disruptive to an already stressed industry.
Key Concerns Include:
- Retrospective tax demands on past transactions, including those completed years ago.
- Increased cost burden on developers and land buyers.
- Risk of prolonged litigation.
- Fear of double taxation, as stamp duty is already paid during registration.
Industry bodies such as the Confederation of Real Estate Developers’ Associations of India (CREDAI) have urged the GST Council to issue a clarification or circular exempting leasehold transfers from GST.
Implications for Stakeholders
Developers and Builders
- May face significant tax liabilities for previous leasehold transfers.
- Potential for project delays due to uncertainty and legal hurdles.
- Need to re-evaluate contractual language in lease agreements.
Investors and Buyers
- Cost of property acquisition may increase if GST is applied.
- Complicated title transfer process and legal due diligence required.
- Potential exposure to tax disputes in older transactions.
Government and Authorities
- Risk of backlash from the real estate and industrial sectors.
- Legal inconsistencies across states may lead to confusion in policy implementation.
- Pressure to bring in clear legal definitions and GST Council clarification.
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What the Future Might Hold
Today, the Supreme Court has not made a conclusive decision concerning this case. It is not surprising though that the central government or GST authorities might make a Special Leave Petition (SLP) to the Supreme Court as against the High Court decisions.
Meanwhile, legal experts and tax consultants are urging the GST Council to:
- Issue a clear and uniform policy distinguishing between taxable and non-taxable transfers.
- Amend Schedule III if required, to explicitly include or exclude long-term leasehold transfers.
- Consider issuing retrospective relief or amnesty schemes to avoid unnecessary litigation.
Recommendations for Stakeholders
Developers
- Conduct a detailed review of all past leasehold transactions.
- Seek expert legal and tax advice before responding to any GST notice.
- Maintain proper documentation of lease transfer agreements and payment records.
Buyers and Investors
- Ensure that legal due diligence covers GST liability, especially for leasehold plots.
- Request tax clearance or indemnity clauses in agreements.
Policymakers
- Clarify the GST treatment of leasehold transfers to reduce uncertainty.
- Avoid retrospective tax imposition which harms investor confidence.
- Coordinate with state authorities to ensure consistent policy across India.
The surprise imposition of GST on transferring leasehold land has given a new spate of doubt to the real estate business in India. Though across the country High Courts have been of the view that the developers should win this one seeing the decision against such applicability of GST, the debate is still not over. The Supreme Court will have to give a way-out or there will have to be clarification in this case by GST Council in order to give certainty in the industry.
Until then, stakeholders must remain cautious, informed, and proactive in dealing with this evolving issue. The future of leasehold land transactions depends on how swiftly and effectively this legal ambiguity is addressed.
FAQ,s Frequently asked questions
1. What are the recent GST notices regarding leasehold land transfers in India?
The GST authorities have recently issued notices targeting transactions involving leasehold land transfers. These notices seek clarification on whether GST is applicable on the transfer of leasehold rights and if the correct tax has been paid by developers, investors, or property buyers.
2. Does GST apply to leasehold land transfers?
Yes, under the current GST framework, transfer of leasehold land may attract GST depending on the terms of the lease, duration, and whether the transfer qualifies as a supply of goods or services. The interpretation can vary, leading to disputes and notices from authorities.
3. Who is liable to pay GST on leasehold land transfers?
Generally, the seller (or the transferor) is responsible for paying GST if the transaction is taxable. However, in some cases, the buyer may also be required to pay GST under the reverse charge mechanism. It is advisable to consult a tax expert for clarity.
4. How are real estate developers responding to these GST notices?
Developers are reviewing their past transactions and compliance records to ensure correct GST filing. Many are seeking legal or tax advisory support to contest notices or provide proper documentation to avoid penalties.
5. What impact do these GST notices have on real estate buyers and investors?
These notices create temporary uncertainty in the market, potentially delaying transactions or affecting pricing. Buyers and investors are advised to verify GST compliance before purchasing leasehold properties to avoid future disputes or additional tax liabilities.
