GST on real estate — the decision tree for builders and buyers
GST on under-construction flats is 1% for affordable housing and 5% for other residential units, both without input tax credit, under the scheme in force since 1 April 2019. Commercial units outside residential projects are taxed with ITC. Joint development, TDR and the 80% registered-purchase rule add layers; this decision tree sorts them out.
The four buckets and their rates
| Property type | GST rate | ITC |
|---|---|---|
| Affordable residential (under construction) | 1% | No |
| Regular residential (under construction) | 5% | No |
| Commercial (under construction) | 12% | Yes |
| Ready-to-move-in (completion certificate received) | NIL (outside GST) | N/A |
| Land sale (only land) | NIL (Schedule III, sl. 5) | N/A |
Rates are on the value after the standard 1/3 land deduction (i.e. on 2/3 of agreement value).
What is "affordable" residential
Per Notification 11/2017-Central Tax (Rate) as amended:
- Carpet area ≤ 60 sq m (in metropolitan cities — Mumbai, Delhi NCR, Bengaluru, Chennai, Hyderabad, Kolkata) or ≤ 90 sq m (in non-metropolitan), AND
- Gross amount charged ≤ ₹45 lakh.
Both conditions must be satisfied. A 70 sq m flat in Chennai for ₹40L is NOT affordable (carpet area > 60 sq m). A 55 sq m flat in Chennai for ₹50L is NOT affordable (gross > ₹45L). A 55 sq m flat in Chennai for ₹42L IS affordable.
The "with ITC" old regime (pre 1-Apr-2019)
Before 1-April-2019, residential property under construction was taxed at 12% (regular) / 8% (affordable) with ITC. Builders charged GST on 1/3 land-deducted value, claimed ITC on cement, steel, contractor services etc.
From 1-April-2019, the GST Council shifted the default to no-ITC rates: 5% / 1%. Ongoing projects (started before 1-April-2019 and not completed by then) got a one-time option to either continue at old rates with ITC or migrate to new rates without ITC. Most new projects after 1-April-2019 are mandatorily at no-ITC rates.
Joint Development Arrangements (JDA)
The most architecturally complex GST issue: a landowner provides land to a developer in exchange for built-up area (revenue share or area share). Two supplies arise simultaneously:
- Landowner → developer: transfer of development rights (TDR). GST applies under RCM at 18% on the value of TDR, with the developer paying via Sec 9(3) RCM. Exempt for the portion attributable to flats sold by the developer BEFORE completion certificate (Notification 4/2019-CTR).
- Developer → landowner: construction service on the landowner's share of flats. GST applies at the regular project rate (1% / 5% / 12%) on the value attributable to the landowner's flats — payable by the developer at time of issue of Completion Certificate.
This is why JDA contracts must clearly demarcate landowner's-share area and revenue-share. Sloppy JDAs end up in tribunal-level GST disputes.
Cement and steel — the 80% rule
To prevent under-procurement abuse, the GST Council mandated that the developer of a residential / commercial project must procure at least 80% of inputs and input services (other than cement, capital goods, TDR) from registered suppliers. Any shortfall is taxed under RCM at 18% in the developer's hands.
Additionally:
- Cement — if procured from unregistered supplier, RCM at 28% regardless of the 80% rule.
- Capital goods — if procured from unregistered supplier, RCM at the applicable rate.
Worked example — Chennai project
Builder X launches a 100-flat residential project in Adyar. Each flat 800 sq ft, gross consideration ₹65 lakh (above ₹45L → regular residential). Total revenue ₹65L × 100 = ₹65 Cr.
| Item | Computation | Amount |
|---|---|---|
| Gross revenue | ₹65,00,00,000 | |
| Less: Land 1/3 deduction | 1/3 × 65 Cr | (₹21,66,66,667) |
| Taxable value | ₹43,33,33,333 | |
| GST at 5% | 5% × 43.33 Cr | ₹2,16,66,667 |
| ITC claim | No (post 1-Apr-2019 rate) | NIL |
Buyer side — what to look for
- Is the property under construction? If completion certificate is already issued, no GST. If under construction, GST applies on instalments.
- What is the rate quoted on the demand letter? 1% / 5% / 12% — verify alignment with property type.
- Is the GST charged on the gross amount or post-land-deduction value? Builder may quote "5% GST" on the gross, which works out to 5% × 100 = 5% effectively (because the 1/3 deduction is internally embedded in the rate notification). Don't get confused — the rate IS on gross consideration once the notification's deduction is applied. Just verify the rate matches type.
- Maintenance charges: separately taxable at 18% under "real estate services other than works contract" if recurring. Up-front amenities / club fees etc. — bundle with sale to inherit 5% / 12% rate.
- Refund of ITC on cancellation: if the builder issues credit note for cancellation, GST on the cancelled amount can be claimed back via the credit note mechanism, subject to time limits.
Commercial real estate — the 12% with ITC route
For commercial properties (offices, retail shops, warehouses), GST is 12% with full ITC. Why a builder still chooses this:
- Buyer is typically a registered business (e.g. corporate buying office, retailer buying shop). Buyer claims the 12% GST as ITC against their output supply.
- Net economic GST cost to buyer = zero (with full ITC chain).
- For builder, the full 12% with ITC route preserves working-capital efficiency.
If a buyer is NOT registered (HUF, individual), the 12% becomes a real cost. Most commercial property is bought by registered businesses, so the 12% rate isn't a deal-breaker.
Common defaults
- Misclassifying as "affordable" when carpet area or price crosses threshold. The buyer's stamp duty / agreement value is on the table; verify both conditions before charging 1% instead of 5%. Wrong classification = 4% GST underpayment + interest + penalty.
- Charging GST after completion certificate. Once CC is issued, the supply moves to Schedule III item 5 (sale of land / building post-completion) — outside GST. Continuing to charge GST is unauthorised collection.
- Forgetting JDA TDR RCM. Developers focus on output GST and miss the TDR RCM @ 18% on the landowner's contribution.
- Not tracking the 80% registered-supplier rule. An aggregated annual reconciliation in March that shows < 80% registered procurement triggers the RCM @ 18% on the shortfall. Plan vendor mix.
- Maintenance bundling vs separately taxable. Up-front club / amenity charges bundled into sale price take the 5% rate. Recurring maintenance is 18% separately. Some builders aggressively bundle; check substance.
Bottom line
GST on real estate is high-stakes because the rates differ by 4-11 percentage points and the ITC eligibility flips on or off. Builders must lock in classification at project kickoff (with RERA documentation that supports the carpet area and price calls), monitor the 80% registered procurement and the cement RCM, and track JDA TDR liability separately. Buyers must verify rate × stage of completion before paying any instalment. Get the structure right early — retrofit is brutal.
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Ishaq Aqeel
Associate at Finclar, leads the GST and indirect-tax practice. Advises Chennai-based residential and commercial real-estate developers on project-level GST structuring, JDA documentation and TDR RCM compliance.