GST on Real Estate: Rates for Under-Construction and Ready Properties

Real estate is one of India’s most important sectors, and understanding how GST applies to property transactions can save buyers and developers significant money. GST on real estate has gone through multiple revisions since 2017, and the current rate structure distinguishes between affordable housing, regular residential projects, and commercial properties.

Does GST Apply on All Real Estate?

GST applies only to the supply of construction services, not to the sale of completed, ready-to-move-in properties. A completed flat or house sold after the Occupation Certificate has been issued is not subject to GST. However, under-construction properties are subject to GST since they involve an ongoing construction service.

Current GST Rates on Residential Properties

**Affordable Housing:**
– GST rate: **1%** (without Input Tax Credit).
– Definition: Residential unit with carpet area up to 60 sq metres in metro cities or 90 sq metres in non-metro cities, priced at up to Rs. 45 lakhs.

**Other Residential Properties (Under Construction):**
– GST rate: **5%** (without Input Tax Credit).
– Applicable to all other residential under-construction projects, including premium and luxury apartments.

The rate of 5% was reduced from 12% (with ITC) effective April 1, 2019, when the GST Council removed ITC on under-construction residential properties and reduced the headline rates.

GST on Commercial Properties (Under Construction)

For commercial real estate such as shops, offices, and commercial complexes:
– GST rate: **12%** (with Input Tax Credit).

Buyers of under-construction commercial properties pay 12% GST on the purchase price.

Ready-to-Move-In Properties

Completed residential or commercial properties are exempt from GST. The test is whether the Occupation Certificate (OC) has been issued:

– If OC has been issued: no GST.
– If OC has not been issued: GST applies (it is still under construction).

This is an important point for buyers. Always check the OC status before computing your total cost.

GST on Land

Land itself is not a supply of goods or services and is not subject to GST. When you buy a plot of land without any construction, no GST applies. However, if you buy a plot within a plotted development scheme where the developer is providing infrastructure, drainage, and roads, GST may apply to the value of services.

GST on Renting of Residential Property

Renting of residential property to a registered person (for business use) now attracts GST at 18% under the reverse charge mechanism (introduced from July 18, 2022). The registered tenant must pay 18% GST under RCM. Renting residential property to an individual for personal use remains exempt.

Input Tax Credit Situation for Developers

Developers of residential projects under the new rate structure (1% or 5%) cannot claim ITC on their inputs (cement, steel, labour contractors, etc.). This was a significant change from the pre-2019 regime where ITC was available. For commercial projects (12%), ITC remains available.

Practical Example

Arun books an under-construction 2BHK flat in Bengaluru for Rs. 80 lakhs. The carpet area is 75 sq metres. Since the carpet area exceeds 60 sq metres (metro city threshold) and the price exceeds Rs. 45 lakhs, this is not affordable housing. GST at 5% = Rs. 4 lakhs applies. Arun’s total payment = Rs. 84 lakhs (excluding stamp duty and registration).

Key Takeaways

– GST applies only to under-construction properties, not to completed (OC-received) properties.
– Affordable housing: 1% GST (carpet area up to 60/90 sq m, price up to Rs. 45 lakhs).
– Other residential under-construction: 5% GST (no ITC for buyer or developer).
– Under-construction commercial properties: 12% GST (ITC available for buyers).
– Land transactions are not subject to GST.
– Renting residential property to registered businesses attracts 18% GST under reverse charge.

Understanding GST before booking an under-construction property helps you calculate your true total cost and compare it accurately with ready-to-move-in options where no GST applies.