‘Absentee’ landlords under GST ambit

Vijay C Roy

Tribune News Service

Chandigarh, June 19

The change in the definition of an “agriculturist” in the Central Goods and Service Tax (GST) Bill has brought “absentee” landlords under its ambit and set alarm bells ringing in states such as Punjab, where most of the big landlords prefer to lease their land. 

Agriculture experts point out that the land lease model is a widely prevalent farm practice accounting for more than half of the land under cultivation in Punjab and Haryana. 

Major political parties in Punjab and Haryana did not protest when the GST council refused to relax the provisions. It declined Punjab’s suggestion to add a sub-clause for the inclusion of agricultural operation through any model, including rental, mortgage or lease, under the definition of “agriculturist”. 

There is another catch. Landowners who are putting up in a state other than where they have land holdings will be covered under the IGST (Inter- State GST) and are liable to pay tax even if they give one acre on rent. For example, if a person having his permanent address in Chandigarh leases land to someone in Punjab, he would be liable to pay GST at the rate of 18 per cent per annum. 

However, insiders pointed out that it would be difficult to make out whether land was given on rent or not as it is generally a verbal agreement between landlord and tenant without any legal documentation. 

According to farm scientists, the average annual rental of agricultural land in Punjab hovers around Rs 30,000-50,000 per acre. Considering the land rent as Rs 50,000 per acre, a landowner gets Rs 7.5 lakh as rent for 15 acres. If he earns Rs 10 lakh from other businesses, his total aggregate turnover would be Rs 19 lakh. So, he doesn’t come under the ambit of the Bill. 

However, when his total aggregated (excluding salary) income crosses Rs 20 lakh, he would have to register under the GST. 

Tax experts say that the move would not impact small landowners as the threshold for the exemption is an aggregate turnover of Rs 20 lakh (intra-state). In the case of Northeastern and hill states, farmers having an aggregate turnover below Rs 10 lakh are out of the GST.

Defining agriculturist 

“An agriculturist, according to Section 2 (7) of Central GST Act, is an individual or a Hindu undivided family (HUF) who undertakes cultivation of land through own/hired labour or under individual or family supervision,” say experts. 

“As such, ‘absentee’ landlords do not fall under the definition of ‘agriculturist’ as they do not undertake cultivation on their own. They lease their land to other agriculturists who, in turn, pay rent in cash. Therefore, landowners who receive rent in cash would be liable to pay GST. However, this would be subject to the landowner crossing the Rs 20 lakh per annum aggregate turnover threshold under GST 

registration,” said Rajan Datt, Additional Commissioner, Customs, Central Excise and Service Tax, Chandigarh.

“Schedule II of the draft Central GST Bill lists lease, tenancy, easement and licence to occupy land as supply of service,” said Mastan Singh Chambyal, a chartered accountant. 

Government sources added that only actual farmers under the definition of “agriculturist” would be covered.

Vidhan Sabha passes Bill

Chandigarh: The Punjab State GST Bill, 2017, was on Monday passed unanimously by the Vidhan Sabha. Finance Minister Manpreet Singh Badal introduced the Bill in the House. Before it was passed, former Finance Minister Parminder Singh Dhindsa (SAD), Kanwar Sandhu (AAP) and Som Parkash (BJP) spoke on it. Sandhu expressed concern over the increase in the prices of agriculture inputs and equipment under the GST regime because of “high tax rates”. Later, CM Capt Amarinder Singh said his government was committed to implementing GST with minimum pain, if any, to the trade and industry in the state. — TNS