Applicability of GST on Real Estate

The supply of goods and services related to both movable and immovable property is also subject to the implementation of the e-invoicing system in stages. The National Informatics Center was the first designated invoice registration portal (IRP) for this (NIC). A trial version of einvoice1-trial.nic.in was made available to taxpayers so they could get accustomed to using it. However, the government withdrew this website since many taxpayers were using it to create their actual  e-invoices .

In this article, we will take a look at what einvoice1-trial.nic.in is and what the user can do by using this provision.he GST tax. With several taxes previously in place, such as service tax and VAT, the indirect taxation in this industry has undergone a total revamp with the implementation of GST.

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Is GST Applicable to Immovable Property?

Section 7(2)(a) of the CGST legislation of 2017 states that the sale of land and buildings must not be regarded as a supply of goods or services. Numerous services that are related to real estate are subject to GST.

For instance, any lease or letting out of an entire or partial building, such as a commercial, industrial, or residential complex for a business or trade; any tenancy, easement, or permission to occupy the land. The real estate-related services that are subject to the GST are listed below:

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  • Rentals of Immovable Property and any lease, tenancy, or easement: Rental services for business purposes are included in the definition of supply in Section 7(1), which refers to “all sorts of supply.” The GST council establishes the GST rate for renting an immovable property as a business for a certain time period. Residential real estate used exclusively for residential purposes will not be subject to taxation. The GST will be applied to the tenancy premium. After paying a fee, the tenant is granted the right to occupy the property.
  • Until the entire compensation is paid after the competent authority issues a completion certificate or after the first occupation, whichever comes first, real estate project construction is taxed in accordance with schedule II. It stipulates that finished projects are free from GST and that only properties that are still under development are taxed. Only when partial or full payment is made prior to the first occupation or the issuance of the completion certificate, whichever comes first, is GST due.

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The Pre-GST Taxability of Real-Estate Transactions

The table given below shows the applicability of taxes on real-estate transactions in the pre-GST era:

Nature Of Duty Rate Of Tax When Was Tax Required To Be Paid?
VAT 1 to 4% On Sale Of Under Construction Properties
Service Tax 4.5% On Sale Of Under Construction Properties
Registration Charges 0.5 to 1% On Sale Of Under Construction Properties
Stamp Duty Charges 5 – 7% On Sale Of Under Construction Properties

*State-to-state differences exist for stamp duty, VAT, and registration fees. Under the former indirect tax system, VAT was not applied to finished or ready-to-sell assets, and Cenvat credit on the input used to construct a building or other civil structure, or any portion thereof, was restricted.

Taxability of Real Estate Transaction Under GST

The table given below shows the applicability of GST on real-estate transactions:

Particulars Applicability Rate Of Tax Input Tax Credit
On Ready-To Move properties for which completion certificates are issued Not Applicable – Because the sale of the building is treated as an activity or transaction which shall be treated neither as a supply of goods nor a supply of service as per schedule III of CGST act, 2017 – Not Available
On Under Construction Properties (For Homes Purchased Under Credit-Linked Subsidy Scheme) Applicable as the supply of service as per schedule I of CGST Act, 2017 8%* Available
On under-construction properties (other than above) Applicable as the supply of services as per schedule I of CGST Act, 2017 12% Available
On resale properties Not Applicable – Not Available
On Land Purchase and sale Not Applicable. As per schedule III, the sale of land is neither supply of goods nor services. – Not Available
Works Contract Applicable 18% Available
Composite supply of works contract – For use by the general public Applicable 12% Available
Composite supply of works contract – Affordable housing Applicable 12% Available

Note: The homes purchased under the credit-linked subsidy scheme (CLSS) attract 12% GST rates. The applicable rate will be 8% after cutting the ⅓ amount towards the land cost.

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Impact of GST Rate on Real Estate Sector

Impact of GST on Property Purchase

GST has simplified the tax structure for affordable housing, making it easier for buyers to understand the costs. The reduced GST rate of 1% without input tax credit (ITC) has lowered the overall cost for first-time homebuyers. This has made affordable housing more accessible, boosting demand in this sector. Developers can’t claim ITC, which may slightly impact their profits, but the benefit to buyers generally outweighs this.

Impact of GST on Luxury Property

Luxury properties attract a higher GST rate of 5% without input tax credit (ITC). While this rate provides clarity, it can increase the overall cost for buyers in this segment. Since the ITC is not applicable, developers may pass on the additional tax burden to buyers, slightly inflating property prices. As a result, buyers in this category need to be mindful of the additional costs when planning their purchases.

Impact of GST on Under-Construction Property

A 5% GST rate applies without input tax credit (ITC) for under-construction properties. Buyers should note that this increases the upfront costs compared to ready-to-move-in properties, where no GST is applicable. While it simplifies the tax process, the lack of ITC means developers might face higher costs, which could be passed on to buyers. This has led to a preference for ready-to-move-in properties in some cases.

Impact of GST on Buyers

When purchasing properties that were still being built, buyers were required to pay stamp duty, registration fees, VAT, and service tax. Additionally, the cost of properties differed from state to state due to VAT, registration fees, and stamp duty. Construction properties are subject to a single tax rate of 12% under the GST.

At the same time, GST is not applicable on completed or ready-to-sale properties under construction, and GST is not on completed or ready-to-sale properties, as was the case in the previous law. As a result, consumers will benefit from the GST price reductions.

Impact on GST on Developers/Builders/ Contractors

As a result of the availability of  input tax credits , several taxes are consolidated under GST, greatly lowering the developer’s building costs. Additionally, a decrease in the cost of logistics will be advantageous. There will be an increase in the margin as a result. The drawback is that developers must perform numerous calculations to determine ITC before passing it on to customers.

Impact of GST on Other Stakeholders

The effects on related industries, including labour, material suppliers, service providers, etc. It depends on whether the tax imposed on these goods and services rises or falls. The real estate sector would be adversely affected by this. The following list of commodities has a connection to the construction sector’s GST rates:

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Product Rate Of GST
Sand 5%
Sand and fly ash bricks 12%
Steel 18%
Paints 18%
Marble and granite 28%
Cement 18%

GST Calculation on Real Estate

GST on real estate is mainly applicable to under-construction properties, as GST is considered a tax on the supply of services. The calculation varies based on the type of property and the nature of the buyer:

1. Under-Construction Residential Property

  • Without Input Tax Credit (ITC):
    • 5% GST on the total value (no ITC allowed)
    • Applicable to regular residential units
  • Affordable Housing:
    • 1% GST (without ITC)
    • Conditions:
      • Carpet area up to 60 sq.m (metros) / 90 sq.m (non-metros)
      • Property value not exceeding ₹45 lakhs

2. Commercial Property (Under Construction)

  • 12% GST (with ITC) on the total value
  • Applicable to shops, offices, etc., that are not part of a residential real estate project

3. Mixed Projects (Residential + Commercial)

  • Different GST rates apply for residential and commercial units
  • Input Tax Credit is restricted proportionately

Important Notes:

  • GST is calculated on the amount paid to the builder before completion.
  • Stamp duty and registration charges are separate and still apply.

What Is an Affordable Residential Apartment Under GST

The term affordable residential apartment has a specific meaning in GST. This definition is important because it decides whether the concessional rate of one percent applies.

A residential apartment is treated as affordable when all these conditions are met

  • The apartment is part of a residential real estate project that follows the notified conditions
  • The carpet area is up to sixty square meter in big metro cities and up to ninety square meter in other cities and towns
  • The total price charged for the apartment does not exceed forty five lakh rupees, excluding stamp duty and registration charges

If these limits are crossed, the unit is normally treated as a regular residential apartment and the five percent rate without input tax credit applies on the under construction supply.

In practice, this means

  • Small and mid size homes in approved affordable projects can enjoy a lower GST rate of one percent without input tax credit
  • Bigger flats or premium units in the same city will usually fall in the regular residential category and attract five percent without input tax credit
  • Buyers should check carpet area, agreement value and project type carefully to know which rate applies

Knowing this definition helps both buyers and developers plan pricing, eligibility for schemes and tax outflow in a better way.

GST Exemptions on Real Estate

GST is not applicable in the following real estate scenarios:

1. Ready-to-Move-In Properties

  • If the completion certificate is issued or possession is granted before the sale, no GST is levied.
  • These are considered non-supply under GST.

2. Resale of Property

  • GST is not applicable on the sale of completed property from one individual to another (secondary market sales).
  • Such transactions attract only stamp duty and registration charges.

3. Land Sales

  • Sale of land alone is fully exempt from GST.
  • However, if land is part of a composite contract (e.g., with construction), GST applies only to the construction component.

4. Rent from Residential Property

  • Renting of residential property for residential use is exempt.
  • If rented for commercial purposes, GST at 18% may apply.

These exemptions aim to avoid double taxation and keep real estate accessible, especially for home buyers in the affordable housing segment.

GST on Additional Charges in Real Estate Transactions

In many property deals, the price of the flat is not the only amount that the buyer pays. There are several extra charges linked to the same supply, such as

  • Preferential location charges for a better view or floor
  • Car parking charges
  • Club house or amenity membership fees
  • Floor rise charges
  • Development charges, maintenance deposits and similar amounts

Under GST, these extra amounts are normally treated as part of a single combined supply of construction service. The main supply is the sale of the under construction apartment, and the other charges follow the same GST rate as the main supply.

This means

  • For an affordable residential apartment that qualifies for the one percent rate without input tax credit, eligible additional charges linked to that apartment are also taxed at one percent
  • For a regular residential unit that attracts five percent without input tax credit, the related charges are taxed at five percent
  • For a commercial unit that attracts twelve percent with input tax credit, the related charges are taxed at twelve percent

From a buyer point of view, it is useful to remember that GST applies not only on the base flat price but also on most ancillary charges that arise only because the flat is being purchased. From a developer point of view, invoices and receipts should clearly show how these amounts are clubbed and taxed so that there is no confusion later.

Reverse Charge Mechanism (RCM) and Its Impact

The scope of RCM has significantly expanded in GST, which may adversely impact the developers.

  • If products or services are obtained from a party who is not registered under GST, a registered person under GST is required to pay GST on all such deliveries. This is a substantial addition to RCM under the GST statute.
  • A developer is required to pay the GST in circumstances where services are provided by municipalities, the government, or other local authorities, such as those that transport goods, provide legal services, or other situations where the services are provided by an individual or corporation (subject to exclusions).
  • Additionally, under GST, the developer is not permitted to offset the tax due under RCM with the input credit made possible by the GST paid on inputs. It must be paid in cash or by bank transfer instead.

RCM Obligations for Promoters Under the Eighty Percent Rule

Real estate promoters have some special responsibilities under the reverse charge mechanism. One key rule relates to purchases from unregistered suppliers for a project.

For each real estate project, the promoter is expected to ensure that at least eighty percent of the value of inputs and input services for that project is obtained from suppliers who are registered under GST.

If the total value of purchases from registered suppliers falls short of this eighty percent level in a financial year

  • The promoter has to pay GST on the shortfall value under reverse charge
  • The tax rate is usually eighteen percent for most input services and items that fall in the standard slab
  • GST on cement purchased from unregistered suppliers is payable at the applicable cement rate, also under reverse charge

Apart from this

  • GST on certain capital goods purchased from unregistered suppliers for the project is also payable under reverse charge
  • The promoter must calculate this liability at the end of the year for each project and discharge it in cash through the electronic cash ledger

In simple terms

  • Promoters should try to buy most goods and services for a project from registered vendors
  • If they do not meet the eighty percent requirement, they must self pay GST on the gap under reverse charge
  • Proper tracking of project wise purchases in accounting software makes this calculation easier and reduces the risk of non compliance

This rule increases the importance of vendor selection and documentation in the real estate sector and should be built into the project planning and accounting process from the start.

Applicability of Stamp Duty

Stamp duty and registration fees are not included in the calculation of the GST. Similar to the pre-GST regime, stamp duty will continue to be charged on both finished and unfinished properties.

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Conclusion

The Goods and Services Tax (GST) has had a significant impact on the real estate sector in India since its implementation in 2017. The applicability of GST on real estate depends on various factors, such as the type of property, the stage of construction, and the nature of the transaction.

While the introduction of GST has led to some challenges for the real estate industry, such as increased compliance requirements and higher tax rates in certain cases, it has also brought about greater transparency and simplification in tax administration. As the sector continues to adapt to the new tax regime, it is important for businesses to stay up-to-date with the latest regulations and compliance requirements to ensure smooth operations and avoid any penalties or legal issues.

Hitesh Aggarwal
Hitesh Aggarwal
Chartered Accountant
MRN No.: 529770
City: Delhi

As a Chartered Accountant with over 12 years of experience, I am not only skilled in my profession but also passionate about writing. I specialize in producing insightful content on topics like GST, accounts payable, and income tax, confidently delivering valuable information that engages and informs my audience.

Frequently Asked Questions

  • Is GST applicable on the purchase of land?
    No, GST is not applicable on the purchase of land. The sale of land falls under the “no supply” category, which means it is outside the scope of GST. Land transactions are subject to stamp duty and registration charges, which vary from state to state. Since land is an immovable asset, it does not attract GST, helping buyers avoid extra costs under the GST regime.
  • How does GST affect the resale of properties?
    GST is not applicable on the resale of properties. Once a property is constructed and a completion certificate has been issued, it is considered a “ready-to-move-in” property. These properties fall outside the GST framework. However, buyers still need to pay applicable stamp duty and registration charges on resale transactions, but there is no GST burden in such cases.
  • Are rental incomes subject to GST in the real estate sector?
    Rental income from residential properties is exempt from GST. However, if a commercial property is rented out and the landlord's total rental income exceeds ₹20 lakhs annually, GST at 18% applies. No GST is charged for residential rentals, ensuring relief for homeowners. Businesses need to factor in this tax for commercial rentals when calculating total costs.
  • Can developers claim Input Tax Credit (ITC) under GST?
    Under GST, developers of residential properties cannot claim Input Tax Credit (ITC) for affordable and luxury housing projects. This rule applies to properties sold under the new GST rates of 1% (affordable) and 5% (non-affordable). While developers cannot offset their tax costs, the intention is to pass the benefit of lower taxes to buyers by making properties more affordable.
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