This circular provides clarity on the taxability of tenancy rights under GST, particularly in cases where such rights are transferred against payment of a tenancy premium, commonly known as the “pagadi system”.

It clarifies that transfer of tenancy rights against consideration in the form of tenancy premium constitutes a supply of service under GST. Such transfer is in the nature of leasing or renting of immovable property and is specifically treated as a supply of services under Schedule II of the CGST Act. Accordingly, the consideration received for transfer of tenancy rights is liable to GST.

The circular further clarifies that the levy of stamp duty and registration charges on such transactions does not take them outside the scope of GST. Merely because a transaction involves registration or payment of stamp duty, it does not cease to be a taxable supply under GST. Transfer of tenancy rights cannot be treated as sale of land or building, which is excluded from GST under Schedule III.

It is also clarified that renting of a residential dwelling for use as a residence is exempt from GST. Therefore, grant of tenancy rights in a residential dwelling for residential use, whether against tenancy premium, periodic rent, or both, is exempt from GST.

However, where an outgoing tenant surrenders tenancy rights and receives a portion of the tenancy premium as consideration, such activity is treated as a supply of service by the outgoing tenant and is liable to GST.

These clarifications aim to bring uniformity in the GST treatment of tenancy-related transactions.