AAR Allows Tax Credit on GST Paid Upfront Lease Premium
In a move that could come as a breather for companies and even corporate individuals, an Authority for Advance Ruling (AAR) has permitted tax credit on goods and services tax (GST) paid on upfront lease premium. Until now, this was disallowed. The upfront premium paid is not related to construction activity of such covered space but against the rental value for the period of rent calculated for the period of lease and collected upfront, the judgment said adding that input tax credit should be allowed on this upfront payment of rent. Input tax credit is a mechanism under GST where part of the tax paid can be set off against future tax liability. This ruling from the AAR assumes significance as it would encourage many tenants to challenge the taxman's stance. Input tax credit is generally not permitted by tax authorities on the ground that same is in relation to immovable property, hence restricted. Where tenants undertake some renovation or construction work before they use the property, the credit is denied on the logic of input service of lease being used for construction, Harpreet Singh, partner at KPMG India said. The tax authorities also argue that since no input tax credit is allowed in any real estate deal the same principal should apply to lease premiums, in disallowing it.
Tags : AAR Tax Credit GST companies Authority for Advance Ruling tenants challenge authorities renovation construction