GST on Real Estate: Leasehold Transfers & Going Concern Exemptions in 2025

GST on Real Estate: Leasehold Transfers & Going Concern Exemptions in 2025

The landscape of GST on real estate transactions and leasehold rights has seen significant judicial and regulatory developments in 2025, offering much-needed clarity for businesses and investors. Two key rulings from Gujarat—one by the High Court and another by the Authority for Advance Rulings (AAR)—have reshaped the tax treatment of leasehold transfers and slump sales, with far-reaching implications for compliance and structuring.

For leasehold rights, the Gujarat High Court has reaffirmed that transfers of GIDC (Gujarat Industrial Development Corporation) leasehold interests are not subject to GST, as they constitute a transfer of immovable property rather than a supply of service. This distinction is pivotal, as it places such transactions outside the GST net, though they may still attract stamp duty and capital gains tax. The ruling underscores the legal principle that leasehold rights, when transferred, create an enduring interest in land, aligning with the definition of immovable property under Indian law.

Simultaneously, the Gujarat AAR has expanded the scope of GST exemptions for going concern sales in real estate. A landmark ruling held that the slump sale of an entire construction project (e.g., RDB Realty’s Surat housing project for ₹60 crore) qualifies as a transfer of a going concern, making it GST-exempt provided the business is transferred as a running operation—including assets, liabilities, and workforce—without breaking it into individual supplies. This provides a clear pathway for developers to structure project sales without triggering GST liabilities.

These rulings highlight the critical importance of transaction structuring in determining GST applicability. While leasehold transfers and going concern sales enjoy exemptions, other real estate transactions—such as individual sales of land or under-construction flats—may still attract GST at 5% or 12%, depending on the nature of the supply. The Gujarat judgments serve as a timely reminder for stakeholders to document transactions precisely, maintain evidence of business continuity (for going concern claims), and conduct due diligence to avoid unintended tax exposures. As the 2025-2026 fiscal year unfolds, these precedents will shape compliance strategies, but case-specific legal guidance remains essential to navigate the nuances of GST on real estate transactions and leasehold rights.

GST on Real Estate: Leasehold Transfers & Going Concern Exemptions in 2025

1. Leasehold Rights Transfers: GST Treatment & Recent Judicial Clarity

The Gujarat High Court has recently reaffirmed that the transfer of GIDC (Gujarat Industrial Development Corporation) leasehold rights is a transaction involving immovable property, not a supply of service, and therefore outside the scope of GST. This ruling is significant for businesses and individuals engaged in leasehold transactions, as it clarifies that such transfers do not attract GST, though they may still be subject to stamp duty and capital gains tax under the Income Tax Act. The Court’s decision hinges on the principle that leasehold rights represent an interest in land, which falls under the definition of immovable property under Indian law.

This judicial stance aligns with the broader interpretation that assignment of leasehold rights—particularly in industrial or commercial plots—does not constitute a taxable supply under GST. The ruling provides much-needed clarity, especially in Gujarat, where GIDC leasehold transactions are common. However, taxpayers must ensure that the transaction documentation explicitly reflects the immovable property nature of the transfer to avoid disputes with tax authorities. The distinction is critical: while GST does not apply, other fiscal obligations, such as TDS under Section 194-IA (for property sales above ₹50 lakh) and capital gains tax, remain applicable.

The judgment also underscores the importance of transaction structuring—for instance, whether the transfer involves only leasehold rights or includes additional services (e.g., development rights or construction work), which could trigger GST liability. Recent rulings emphasize that pure leasehold transfers are GST-neutral, but hybrid transactions may require careful evaluation to determine tax treatment. This development is particularly relevant for 2025-2026, as businesses reassess their real estate holdings amid evolving GST jurisprudence.

2. Going Concern Exemptions: Slump Sale of Real Estate Projects

The Gujarat Authority for Advance Rulings (AAR) has provided significant clarity on the GST treatment of slump sales in real estate, ruling that the transfer of an entire construction project as a going concern is exempt from GST. A recent example involves RDB Realty’s Surat housing project, valued at ₹60 crore, where the AAR held that the transaction qualified as a transfer of a going concern, falling outside the scope of GST. This exemption is contingent on two key conditions:

• The business must be transferred as a running operation, including all assets, liabilities, and workforce (if applicable).
• The transaction must not involve the individual supply of goods or services, but rather the entire business as a single composite unit.

This ruling is particularly relevant for developers and investors looking to sell completed or ongoing projects without triggering GST liabilities. The exemption aligns with the broader principle that transfers of going concerns—where no new supply is created—should not attract GST, as they are effectively a change in ownership rather than a taxable transaction.

For 2025-2026, this precedent offers a clear pathway for structuring real estate slump sales to ensure GST neutrality. However, developers must ensure proper documentation to substantiate the “going concern” nature of the transaction, including:
– Contracts reflecting the transfer of all rights and obligations.
– Evidence of business continuity (e.g., pending customer agreements, employee retention, or operational licenses).
– A clear demarcation between slump sales (GST-exempt) and partial asset sales (which may attract GST at 5% or 12%, depending on the nature of the asset).

The Gujarat AAR’s decision reinforces the importance of transaction structuring in real estate deals, particularly for large-scale projects, where misclassification could lead to unintended tax liabilities. While this exemption provides relief, taxpayers must remain vigilant in adhering to the conditions laid down by the AAR to avoid disputes with tax authorities.

3. Key Distinctions: Leasehold Transfers vs. Other Real Estate Transactions

The tax treatment of real estate transactions under GST hinges on the nature and structure of the transaction, as highlighted by recent rulings from the Gujarat High Court and the Gujarat Authority for Advance Rulings (AAR). The transfer of leasehold rights, such as those under GIDC, has been unequivocally classified as a transfer of immovable property, placing it outside the scope of GST. This is distinct from transactions involving the supply of goods or services, which attract GST at applicable rates. The Gujarat High Court’s ruling underscores that leasehold rights, when transferred, create an interest in land, aligning with the legal definition of immovable property under the Transfer of Property Act, 1882, and the Registration Act, 1908.

In contrast, the slump sale of a real estate project (e.g., RDB Realty’s Surat housing project) has been treated as a transfer of a going concern, exempt from GST under the Gujarat AAR’s interpretation. This exemption applies only when the transaction involves the entire business operation, including assets, liabilities, and workforce, without breaking it into individual supplies. The distinction is critical: while leasehold transfers are not supplies at all (being immovable property), going concern sales are supplies but exempt due to their composite nature.

However, other real estate transactions, such as the sale of under-construction flats or land, remain subject to GST at prescribed rates (e.g., 5% for affordable housing, 12% for non-affordable housing, as per current rates). The Gujarat rulings reinforce that transaction structuring is pivotal—misclassifying a leasehold transfer as a service or a slump sale as an asset sale could lead to unintended GST liabilities. For instance, the transfer of development rights or partial interests in property may attract GST if they do not meet the criteria for immovable property or going concern exemptions.

C.K. Gupta

Hello, I am C.K. Gupta owner of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.