Tenancy RightsApart from the right to live in the property, the owner may give the tenant a right to sell his tenancy right to a third party. Here, tenancy right would mean the right to live in/ use this property. The tenant pays some amount to get this right and become a part owner of the house/property alone and not the land. This is also known as ‘Pagdi System’ in some parts of India. In the simplest form, say Mr. A resides in a house taken on rent from Mr. X. Mr. A is the tenant, Mr. X is the owner of the property. The Tenancy agreement allows Mr. A to sell his right to stay in Mr. X’s house to any other person. This privilege available to Mr. A is called tenancy right. He had pad Rs. 1,00.000 to get this right. This Rs. 1,00,000 is known as the tenancy premium.
Tenancy PremiumTenancy premium is a payment for a right. It could even mean some amount paid by the owner of the property to the tenant, to leave the property before the time it was agreed between them. To understand better, let’s see these two scenarios- Scenario 1 – A is the owner of a property. B takes this property from A on rent. B pays Rs. 10,000 monthly to A as rent. In addition, B has paid Rs.1,00,000 to A to get a right partly in A’s property. This Rs. 1,00,000 is called Tenancy Premium. Here B is paying A so that A shares his right on the property to a certain extent with B. (A doesn’t lose the title as the owner of the property in any case) Scenario 2 – X is the owner of a property. Y takes this property from X on rent. Y pays Rs. 10,000 monthly to A. Before the end of the agreement, X pays Rs. 1,00,000 to Y, so that Y vacants the property. This Rs. 1,00,000 is also called Tenancy premium. Here X is paying Y so that Y surrenders his right to stay in the property.
Taxation of Tenancy PremiumBefore GST, under the service tax law, transfer of tenancy rights was considered to be a declared service and the tenancy premium was the consideration for this service and was taxable. As per the definition of Supply in the act, Supply of services also includes lease, tenancy, easement, license to occupy the land, etc. Thus it can be said that transfer of tenancy rights is supply under GST. However, after GST rolled in, questions like:
- Will GST be attracted on tenancy premium when stamp duty and registration charges are paid on this premium arising as a result of the transfer of tenancy rights?
- Whether GST will be attracted on the tenancy premium which is received by the tenant who is vacating the property (Outgoing tenant)
- GST will be applicable even in cases where stamp duty and registration fees are paid.
- The tenancy premium given to the tenant (outgoing tenant) will be also taxable under GST.