GST on Real Estate: Construction and Sale of Property
The Goods and Services Tax (GST) functions as a complete system for indirect taxation which applies both to goods and service transactions throughout India including real estate deals. Real estate construction along with property sales experienced major changes because of the GST introduction. The new tax regime functions to enhance real estate taxation procedures by establishing a single unified tax framework. The blog evaluates GST implications for property construction and sales with tax rates and their effects on real estate developers and buyers and market conditions.
1. GST on Construction of Property
The tax rates for constructing properties depend on whether they are residential or commercial buildings and on their construction stage.
- The GST charge for the construction of residential properties in an under-construction state amounts to 5% while not allowing input tax credit (ITC). The recipient can claim input tax credit (ITC) depending on specific terms and conditions.
- To receive this preferential rate of 1% (minus ITC) developers must follow construction limitations established by the government.
- The GST rate for commercial properties under development stands at 12% while builders can use input tax credits (ITC).
| Type of Property | GST Rate | Input Tax Credit (ITC) |
| Residential Property (under construction) | 5% | Available |
| Affordable Housing (under construction) | 1% | Not available |
| Commercial Property (under construction) | 12% | Available |
Input Tax Credit (ITC)
- Input Tax Credit (ITC) for GST paid towards the inputs and inputs services used in the course of construction by the developers of under-construction properties. It offsets tax liabilities to developers.
- GST on GST for Buyers – The buyer of the under-construction property will not be able to claim ITC on the total GST paid in the project. However, developers can give users the benefits of ITC by cutting the overall cost of construction.
2. GST on the Sale of Property
Property sale under construction also does not apply to residential, commercial, or agricultural property since there are different GST provisions based on the type and whether it is under construction or ready for possession.
Sale of Under-Construction Property
- Sales of Under Construction Residential Properties: The GST rate applicable on the sale of the said UCRP is 5% and the ITC is not allowed to the buyer.
- Commercial Properties: The sale of a commercial property that is still under construction attracts 12% GST but the buyer is eligible to ITC if that property is used for business purposes.
- Sale of Completed/Ready-to-Move-in Property: This means that the sale of completed residential properties (i.e., ready-to-move-in properties) is exempt from GST, and as such GST applies only to such under-construction properties.
3. GST on Land and Plot Sales
GST is not applicable on the sale of land or plots, as land is considered outside the purview of GST. However, if the land is part of an ongoing construction project, the construction aspect of the transaction is subject to GST.
- Land Sales: The sale of land is exempt from GST.
- Plot Sales: Similarly, the sale of a plot of land is exempt from GST unless it is sold along with construction services, in which case the construction portion attracts GST.
| Type of Sale | GST Applicability |
| Sale of Land | Exempt from GST |
| Sale of Plot (without construction) | Exempt from GST |
| Sale of Plot (with construction) | GST on the construction part |
4. Impact of GST on Real Estate Buyers
GST has both positive and negative impacts on buyers of real estate:
Positive Impacts
- Reduction in Cascading Taxes: Before GST, real estate transactions involved multiple taxes at different stages (service tax, VAT, etc.). GST has reduced this cascading effect by allowing for the input tax credit.
- Lower Tax Rates: GST rates for the construction and sale of properties, especially affordable housing, are relatively low compared to the previous indirect tax system.
- Transparency: The implementation of GST has introduced greater transparency in the tax structure, making it easier for buyers to understand the tax liabilities and the costs involved.
Negative Impacts
- No ITC for Buyers: For under-construction properties, buyers cannot claim ITC, meaning they bear the full burden of the tax paid, which increases the overall cost of the property.
- Increase in Property Prices: The cost of construction may increase as developers pass on the GST burden to the buyers, especially for under-construction properties where the full GST rate applies.
Get Started with TaxDunia
GST on real estate has transformed the way property is constructed, sold, and purchased. By replacing a complex tax structure with a more streamlined system, it has provided benefits such as lower tax rates, reduced cascading taxes, and greater transparency. However, the lack of ITC for buyers of under-construction properties and the increase in overall property costs may pose challenges. TaxDunia is here to help you out with complex taxation issues. Our business advice will assist your business and lead it to growth.
