Tax and Stamp Duty Issues in Use of Real Estate for Dark Stores: Implications for E-Commerce Warehousing in India

Posted On - 24 July, 2025 • By - Aditya Bhattacharya

The rapid expansion of dark stores — backend fulfilment hubs operated by e-commerce companies — has led to significant legal and operational challenges in urban India. While zoning, fire safety, and licensing remain key hurdles, taxation and stamp duty issues are equally critical, albeit less visibly discussed.

With dark stores operating at the intersection of warehousing, logistics, and quasi-retail, questions abound: What is the applicable GST treatment? Is the property liable for residential or commercial municipal tax rates? Should stamp duty be calculated on lease rent or full consideration, and who bears it? These questions have gained urgency in cities such as Mumbai, Delhi, Bangalore, Gurgaon, Noida, Pune, Ahmedabad, Kolkata, Chennai, Hyderabad, Kochi, and Chandigarh, where dark stores are now embedded within residential and mixed-use properties.

This essay unpacks the legal framework governing indirect tax and property-related charges applicable to dark stores.

Goods and Services Tax (GST) Implications

Dark stores are often misunderstood as retail outlets. In truth, they are non-customer-facing warehouses that facilitate last-mile delivery through online orders. This classification plays a pivotal role in determining GST treatment.

1. GST on Rental Income

  • Under Section 7 of the CGST Act, 2017, renting of immovable property for business purposes is a supply of service, attracting GST at 18%.
  • The landlord is liable to pay GST, provided they are registered and their turnover exceeds the prescribed threshold (₹20 lakh in most states).
  • For long-term leases, especially with fit-outs or security deposits, the GST may apply on additional charges such as maintenance or furnishing, depending on contractual terms.

2. GST Input Tax Credit (ITC)

The e-commerce company (tenant) is eligible to claim input tax credit on rent paid, provided:

  • The space is used for business purposes
  • The landlord issues a GST-compliant invoice
  • However, ITC may be disallowed if the dark store is found operating from a residential zone without zoning clearance, as it may fail the “furtherance of business” test.

3. Classification of Dark Store Supplies

  • Deliveries from a dark store to customers are taxed at the applicable rate for the goods sold (e.g., groceries at 5% or 12%, cosmetics at 18%).
  • However, services provided by quick-commerce platforms (e.g., delivery fee) are taxed separately at 18% as a service.
  • GST authorities have occasionally scrutinized bundled transactions, especially when storage, packaging, and logistics are embedded into a single fee structure.

Stamp Duty and Registration of Leases

In addition to GST, lease transactions for dark stores attract stamp duty and registration fees, which are state-specific and heavily scrutinized by revenue departments.

1. Stamp Duty on Commercial Leases:

Most states levy stamp duty on lease deeds based on:

  • Lease term
  • Annual rent
  • Security deposit (in some states, such as Maharashtra)

Key examples:

  • Maharashtra: 0.25% of total rent + deposit for less than 60 months
  • Delhi: 2% for up to 5 years; 3% for above 5 years
  • Tamil Nadu: 1% of total rent over the term

Failure to properly stamp and register leases can lead to penalties, inadmissibility in court, and tax disputes.

2. Who Pays the Stamp Duty?

  • While the lease deed may specify the responsibility (tenant or landlord), the law allows recovery from either party.
  • In e-commerce leases, corporate tenants usually bear the cost, as part of standard risk allocation.

3. Registration Requirements

  • Leases exceeding 11 months must be registered under the Registration Act, 1908, attracting a separate registration fee (usually 1% of consideration or a fixed slab).
  • Unregistered leases are inadmissible as evidence in court and may invite notices from stamp authorities, especially if rent exceeds ₹1 lakh/month.

Municipal Tax and Property Reclassification

Another frequently contested issue is municipal property tax classification. Properties hosting dark stores often remain taxed as residential, even though they are functionally used as commercial warehousing.

1. Reassessment and Retrospective Taxation: Several municipal corporations (e.g., MCGM in Mumbai, BBMP in Bengaluru, NDMC in Delhi) have reassessed such properties and:

  • Retrospectively applied commercial property tax rates
  • Imposed penalties and interest on the landlord or society
  • Commercial tax rates can be 3x to 5x higher than residential rates, creating sudden financial liabilities.

2. Trigger Events for Reassessment: Notices are often triggered by:

  • RWA complaints
  • Visits by fire safety officials
  • Change in electricity or water consumption patterns
  • Application for trade licenses or GST registration with a residential address

3. Disputes Between Landlords and Tenants

  • In many cases, landlords shift the burden of higher property taxes to tenants, citing breach of zoning or misuse of premises.
  • Well-drafted lease deeds must allocate this liability and clarify who bears post-leasing civic tax reclassifications.

Case Examples from Indian Cities

1. Delhi NCR (Delhi, Noida, Gurgaon)

  • In 2023, several RWAs in Gurgaon reported dark store operations, following which HUDA imposed retrospective commercial tax demands and sealed over a dozen premises.
  • In Delhi, the NDMC and MCD sent notices for misuse of premises under Section 345A of the DMC Act, leading to additional conversion charges and penalties.

2. Mumbai

  • The MCGM reassessed multiple dark store premises in Bandra and Andheri as commercial, following a policy circular from the Revenue Department in early 2024.
  • Stamp duty collections from e-commerce leases rose sharply as authorities launched a drive against under-stamped lease agreements.

3. Bangalore

  • BBMP revised its Unit Area Value (UAV) tax model, reclassifying several properties as “commercial-storage” based on delivery traffic.
  • Zonal officers issued tax re-notices and charged penalties for the last 3 years in some cases.

4. Chennai and Hyderabad

  • The CMDA and GHMC, respectively, have begun asking landlords to submit land use declarations before approving trade licenses.
  • Fire safety inspections have indirectly led to reclassification and reassessment of municipal dues.

Strategic Considerations for E-Commerce Companies

To avoid regulatory friction and financial exposure, companies must take the following steps:

1. Lease Structuring with Full Disclosure

  • Always state the true use of premises as “warehousing/dark store/fulfilment centre”.
  • Avoid disguising backend fulfilment as “office use” or “administrative purposes” — this may lead to misrepresentation charges.

2. GST Registration and ITC Compliance

  • Ensure the premises are linked to the correct GSTIN.
  • Regularly reconcile rent payments and GST filings with lease terms to avoid audits or reversals of ITC.

3. Register Lease and Pay Correct Stamp Duty

  • Avoid informal tenancy or leave-and-license arrangements that are unregistered — especially in high-compliance zones like Mumbai or Delhi.

4. Monitor Civic Property Tax Reclassification

  • Ask landlords to disclose current municipal classification in the lease.
  • Include a clause on responsibility for higher taxes if property gets reclassified as commercial due to your use.

5. Build a Tax Buffer for New Locations

  • Create a per-location tax reserve to absorb unexpected assessments or civic levies during scaling.

Conclusion

Dark stores, by their very nature, operate in a regulatory grey zone — but as state governments and municipalities catch up, tax authorities have begun to assert their stake. From GST and stamp duty to property tax and reclassification penalties, the financial and legal exposure can be significant.

For e-commerce and quick commerce companies, success will depend not just on speed and logistics, but on careful legal and tax structuring of their real estate. In this evolving landscape, ignorance is no longer a shield, and proactive compliance is both a legal necessity and a business advantage.

Co-Author – Asha Kiran Sharma

King Stubb & Kasiva,
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