GST on Real Estate – Key Rates | Rules | Compliance

GST on Real Estate refers to how the Goods and Services Tax (GST) applies to the buying, selling, and developing of residential and commercial properties in India. Introduced on 1 July 2017, GST replaced various indirect taxes like service tax and VAT, aiming to simplify taxation for the real estate sector—which has traditionally been subject to multiple levies and complicated compliance requirements.

Significant changes took effect from 1 April 2019, when the GST Council revised rates for under-construction projects. Promoters of new projects must charge GST at either 1% for affordable residential apartments or 5% for other residential apartments, both without input tax credit (ITC). For commercial apartments in a Residential Real Estate Project (RREP), the rate is 5% (without ITC). Ongoing projects had the option to continue under the old scheme (8%/12% with ITC) or transition to the new scheme (1%/5% without ITC).

Under these rules, builders must ensure that at least 80% of their inputs and input services (other than specified exemptions like development rights or electricity) are purchased from registered suppliers. Shortfalls trigger an 18% tax on the remaining unregistered portion. Builders must also pay reverse charge on cement from unregistered dealers at 28%. Proper record-keeping is crucial, as each project is typically treated separately for GST compliance, and different buildings or phases can qualify as distinct projects under the rules

Table of Contents

1. Background
2. Definitions of Various Terms Used

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1. Background

Taxation of real estate sector has always been problematic issue. The major reason is that the sector is still unorganized. The complications started after introduction of State tax on works contract. The problem aggravated after introduction of service tax on works contract.

The State tax and Service tax was merged on introduction of GST w.e.f. 1-7-2017. However, many issues were still unresolved.

Hence, the GST structure on real estate services relating to residential and commercial apartments has been thoroughly altered w.e.f. 1-4-2019.

This service falls under service code 9954.

The highlights of revised scheme are as follows —

• The revised scheme applies to residential and commercial apartments which are covered under RERA [Real Estate (Regulation and Development) Act, 2016].
• The provisions do not apply to construction of single houses or works contracts not covered under RERA.
• The new scheme is compulsory for projects commenced on or after 1-4-2019. In respect of ongoing projects as on 31-3-2019, the promoter has option to shift to new scheme w.e.f. 1-4-2019 (without ITC) or continue under earlier scheme (with ITC)
• Under new scheme, the GST rates for residential apartments are as follows – (a) CGST 0.5% plus SGST/UTGST 0.5% (total 1%) or IGST 1% (without ITC) for affordable residential apartments (b) CGST 2.5% plus SGST/UTGST 2.5% (total 5%) or IGST 5% (without ITC) for other residential apartments, where price includes value of land.
• In respect of commercial apartments (shops, offices, godowns etc.) in RREP, the GST rate is CGST 2.5% plus SGST/UTGST 2.5% (total 5%) or IGST 5% (without ITC). In respect of construction of commercial apartments (other than RREP), the GST rate is CGST 6% plus SGST/UTGST 6% (total 12%) or IGST 12% (with ITC).
• In case of ongoing projects, if the promoter intends to shift to new scheme (of 1%/5%) w.e.f. 1-4-2019, he is required to refund excess ITC availed as on 31-3-2019 or get credit of ITC less claimed as on 31-3-2019.
• RREP (Residential Real Estate Project) means Real Estate Project (REP) of residential apartments with commercial apartments not more than 15% of total carpet area of REP.
• Affordable Residential Apartment means apartment having carpet area not exceeding 60 square meter in metropolitan cities or 90 square meter in cities or towns other than metropolitan cities and for which the gross amount charged is not more than ` 45 lakhs.
• These rates apply where supply of services involves transfer of land or undivided share of land and its charges are included in the amount charged to customer.
• In respect of new projects, the tax (CGST, SGST/UTGST or IGST as applicable) shall be paid in cash by debiting the electronic cash ledger only [without utilising Input Tax Credit].
• In case of ongoing projects as on 1-4-2019, the promoter has option to opt for earlier provisions of tax i.e. with utilization of ITC. If promoter intends to continue under old scheme, he has to submit declaration in specified form to jurisdictional Commissioner before 20-5-2019.
• If the promoter does not submit such declaration, he is deemed to have opted for the new scheme.
• If landowner- promoter transfers development right or FSI (including additional FSI) to a promoter (developer-promoter) against consideration, wholly or partly, in the form of construction of apartments, the developer-promoter shall pay tax on supply of construction of apartments to the landowner-promoter. The landowner-promoter can take credit of taxes charged from him by the developer promoter, if the landowner-promoter further supplies such apartments to his buyers.
• No GST is payable where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.
• All cement for the project must be purchased from registered supplier only. If not so received, the promoter is required to pay GST @ 28% under reverse charge by promoter (even if total value of supplies received from unregistered suppliers is less than 80%).
• After considering payment of GST on cement under reverse charge, at least 80% of the procurement of inputs and input services [other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI), electricity, high speed diesel, motor spirit, natural gas], used in supplying the real estate project service shall be received from registered supplier only. [In case of interest received, it can be considered as received from registered supplier, if Bank/FI/company giving loan are registered under GST].
• If there is shortfall in procurement from registered suppliers, i.e. if still requirement of procurement of 80% from registered suppliers is not achieved, GST @18% is payable on value to the extent of shortfall. This adjustment is to be done financial year wise and not project wise.
• In case of capital goods procured from unregistered person, the promoter is liable to pay GST under reverse charge.
• In respect of development rights or FSI transferred or payment of upfront amount for long term lease of land on or after 1-4-2019 proposed to be used for residential apartments, GST is not payable on TDR, FSI or payment of upfront amount for long term lease of land if residential apartment is sold before completion. However, if some residential apartments remain unsold on date of completion, proportionate GST is payable on TDR, FSI or long term lease of land by promoter under reverse charge.
• In case of commercial apartments, GST is payable on development rights or FSI transferred or payment of upfront amount for long term lease of land after 1-4-2019, whether or not commercial apartments are sold before obtaining completion certificate. The tax is payable by promoter under reverse charge.
• Where promoter opts to pay tax at full rate (8%/12%) after availing ITC, proportionate reversal of Input Tax Credit is required in respect of apartments remaining unsold as on date of completion or first occupation, whichever is earlier.
• The reversal is required to be made on date of completion of project. Reversal should be as per rule 42 of CGST Rules in respect of inputs and input services and rule 43 of CGST Rules in respect of capital goods.
• Such reversal will be on basis of carpet area and not on basis of value.
• In many projects containing more than one buildings, partial completion certificate/occupancy certificate is often obtained for each building. As per FAQ (Part I) No. 29 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019, if partial completion/occupancy certificate has been obtained before 31-3-2019, the first occupation shall not be considered to have taken place. It will be considered as ongoing project as on 1-4-2019. Promoter can opt to pay tax @ 1%/5% on such project.
• All accounts are to be maintained project-wise. Each project can be treated differently e.g. for some projects, promoter may opt for 1%/5% scheme and for some projects 8%/12% scheme – FAQ (Part I) No. 24 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019.
• If project is big, it is advisable to have separate GST registration for each project and even sub-project.
• As per FAQ (Part I) No. 30 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019, even within same building, two separate projects can be registered e.g. 1st to 10th floor for one project and 11th to 20th for another project. These will be considered as distinct projects.
• If apartment was partially completed as on 1-4-2019, and if promoter opts for 1%/5% scheme, the customer will be liable to pay GST @ 1%/5% on remaining portion. For example, if 40% amount was paid before 1-4-2019, GST at earlier rate [8% or 12% as applicable] will be payable. On balance 60%, 1%/5% as applicable will be payable – FAQ (Part I) No. 17 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019.

FAQs on real estate sector issued by CBI&C – CBI&C has issued two FAQs

(a) 41 FAQs (Part I) vide circular F No. 354/32/2019-TRU dated 7-5-2019

(b) 27 FAQs (part II) vide circular F No. 354/32/2019-TRU dated 14-5-2019.

These broadly state the statutory provisions. The circular clearly states that the answers are for guidance and easy understating and they do not have force of law. Practically, these FAQs will be binding unless it is established that these are against statutory provisions.

Some important clarifications have been discussed at appropriate places.

1.1 Statutory Provisions in Respect of Construction of Complex

Following is ‘supply of service’ as per para 5(b) of Schedule II of CGST Act.

Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

Explanation.— For the purposes of this clause—

(1) the expression “competent authority” means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely –

(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or

(ii) a chartered engineer registered with the Institution of Engineers
(India); or

(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority.

(2) the expression “construction” includes additions, alterations, replacements or remodeling of any existing civil structure.

Residential Complex – “Residential complex” means any complex comprising of a building or buildings, having more than one single residential unit – para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.

Single Residential Unit – “Single residential unit” means a self-contained residential unit which is designed for use, wholly or principally, for residential purposes for one family – para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.

Occupancy certificate granted in is equal to completion certificate – In Mumbai i.e. Brihanmumbai Municipal Corporation (BMC), occupancy certificate is granted. Sale after such occupancy certificate (even before completion certificate) will be sale of immovable property and outside service tax net – PIB (Press Information Bureau), Ministry of Finance dated 26-10-2015.

Same view has been held in Bindu Ventures, In re [2018] 100 taxmann.com 207 (AAR – Karnataka) in respect of occupancy certificate issued by Bruhat Bengaluru Mahanagara Palike.

1.2 Meaning of ‘First Occupation’

As per para 5 of Schedule III read with para 5(b) of Schedule II of CGST Act, If entire consideration is received ‘after issuance of completion certificate/occupancy certificate by the competent authority or its first occupation whichever is earlier’, the promoter (builder or developer) is not liable to pay GST, even if completion certificate or occupancy certificate is not obtained from authorities.

The words ‘after its first occupation’ are confusing. ‘Occupation’ by whom? The ‘occupation’ should be of that particular apartment which is being sold or any apartment in that complex?

As per FAQ (Part I) No. 29 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019, ‘first occupation’ means ‘first occupation’ of the project in accordance with laws, rules and regulations of State/Central Government or any other authority. Thus, mere staying in the apartment before obtaining completion/occupancy certificate will not be considered as ‘first occupation’.

Thus, the FAQ (Part I) treats ‘first occupation’ as equivalent to completion/occupancy certificate. If so, the words ‘or its first occupation whichever is earlier’ become redundant. It is well settled that an interpretation which treats some words as otiose or redundant should not be adopted.

In many places, there is delay in issuing completion certificate/occupancy certificate [Corruption is of course one major reason, but there can be other reasons too]. However, the customers start occupying the apartments.

However, such occupation is illegal occupation.

State Authorities register apartments even before obtaining completion certificate/occupancy certificate – In many States, documents relating to apartments are registered by State Government authorities even before building is completed. Thus, State Governments have willy-nilly accepted these transactions as transactions in immovable property of a completed apartment.

Registration under Registration Act required only in case of immovable property – As per section 17(1)(b) of Registration Act, Non-testamentary Instrument purport or operate to create, declare, assign, limit or extinguish (whether present or future) any right, title or interest (whether vested or contingent) of the value of over ` 100 in immovable property requires compulsory registration with registrar or sub-registrar appointed by
Government.

As per section 2(6) of Registration Act, Immovable property includes any land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit arising out of land, and things attached to earth or permanently fastened to anything which is attached to earth, but does not include standing timber, growing crops or grass.

However, GST can be levied on immovable property also.

Tax on land and buildings is State subject – Taxes on lands and buildings is specified in Entry No. 49 of List II (State List). This entry is continuing under GST Law also.

Under GST Law, Taxes on lands and buildings is within jurisdiction of State Government. Central Government can impose tax on land and buildings only to the extent permitted by GST Council, as GST is concurrent subject. This is done by including ‘deeming provision’ in Schedule II of CGST Act or in a notification.

Conclusion– Since provisions in GST Law are overriding provisions, GST should be leviable even if building is occupied before obtaining completion/occupancy certificate.

Purchaser of apartment is not liable to tax even if he sales before occupation or completion – The Purchaser of apartment is not liable to tax even if he sales before occupation or completion, for two reasons – (a) He is not supplying construction service, as deeming provision requires supply of construction service (b) He is not in the business of sale of apartments.

1.3 Issue of Partial Completion Certificate or Occupancy Certificate

All the accounts are to be maintained project-wise. If project is big, it is advisable to have separate registration for each project.

In one project, there may be more than one building. Often, partial completion certificate/occupancy certificate is obtained for each building.

The issue is critical in respect of GST liability in respect of GST on transfer of development rights or FSI or upfront payment for long term lease.

As per FAQ (Part I) No. 29 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019, if partial completion/occupancy certificate has been obtained before 31-3-2019, the first occupation shall not be considered to have taken place. It will be considered as ongoing project as on 1-4-2019. Promoter can opt to pay tax @ 1%/5% on such project.

1.4 Apartment Partially Completed as on 1-4-2019

If apartment was partially completed as on 1-4-2019, and if promoter opts for 1%/5% scheme, the customer will be liable to pay GST @ 1%/5% on remaining portion. For example, if 40% amount was paid before 1-4-2019, GST at earlier rate [8% or 12% as applicable] will be payable. On balance 60%, 1%/5% as applicable will be payable – FAQ (Part I) No. 17 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019.

1.5 Cancellation of Booking of Apartment by Customer

FAQ (Part I) No. 20 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019 as clarified as follows.

If apartment is booked before 1-4-2019 but cancelled after 1-4-2019, the promoter can issue credit note under section 34 of CGST Act and refund the amount with tax to customer. If he refunds the total amount with GST, the promoter can adjust the tax amount refunded can be adjusted against other liability of GST including liability arising at the rate of 1%/5% GST payable, if entire amount is refunded to customer.

If customer who has booked apartment prior to 1-4-2019 cancels the booking made earlier and makes fresh booking, the tax paid by him earlier will be reversed by promoter.

1.6 Each Project Is a Separate Project, and Promoter Can Treat Them Differently

All accounts are to be maintained project-wise.

Each project can be treated differently e.g. for some projects, promoter may opt for 1%/5% scheme and for some projects 8%/12% scheme – FAQ (Part I) No. 32 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019.

1.7 Liability of Services of Contractor or Sub-Contractor

The contractor or sub-contractor supplying service to promoter or other contractor is liable to pay tax @ 18% in case of construction of commercial apartments or residential apartments other than affordable apartments. In case of services of contractor or sub-contractor for construction of affordable apartments, the GST rate is 12% – FAQ (Part I) No. 2 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 7-5-2019.

Construction service provided by contractor to developer for construction of affordable housing projects which are given infrastructure status are liable to pay GST @ 12% under Sr. No. 3(v)(da) of Notification No. 11/2017-CT (Rate) and No. 8/2017-IT (Rate) both dated 28-6-2017– Starworth Infrastructure and Construction Ltd. In re (2021) 87 GST 595 = 130 taxmann.com 175 (AAR-Karnataka).

1.8 Redevelopment is Subject to GST

Generally in re-development project, land is owned by a society, comprising members of the society with each member entitled to his share by way of an apartment. When it becomes necessary after the lapse of a certain period, society or its flat owners may engage a promoter (builder/developer) for undertaking re-construction. Society/individual apartment owners give ‘No Objection Certificate’ (NOC) or permission to the promoter (builder/developer), for re-construction. The promoter (builder/developer) constructs apartments with same or different carpet area for original owners of apartment and additionally may also be involved in one or more of the following: (i) construct some additional apartments for sale to others (ii) arrange for rental accommodation or rent payments for society members/original owners for stay during the period of re-construction (iii) pay an additional amount to the original owners of flats in the society.

Under this model, the promoter (builder/developer) receives consideration for the construction service provided by him, from two categories of service receivers. First category is the society/members of the society, who transfer development rights over the land (including the permission for additional number of apartments), to the promoter (builder/developer). The second category of service receivers consist of buyers of apartments other than the society/members. Generally, they pay by cash.

In both the cases, GST is payable as in first case, the promoter receives consideration in form of TDR and in other cases, by cash.

1.9 GST on Slum Rehabilitation Programmes

In Slum Rehabilitation programmes, Government transfers TDR/FSI to promoter. The promoter supplies apartments to slum dwellers without monetary consideration. The apartments constructed in addition to apartments given free to the slum dwellers are sold.

In both the cases, GST is payable – FAQ (Part II) Nos. 8 and 9 issued by CBI&C vide circular F No. 354/32/2019-TRU dated 14-5-2019.

If the apartments fall within the definition of affordable residential apartments, GST rate will be 1% [0.5% CGST plus 0.5% SGST/UTGST]. Similarly, if such apartments are covered under specified schemes, the GST rate will be 1%.

Purchaser of apartment is not liable to tax even if he sales before occupation or completion – The Purchaser of apartment is not liable to tax even if he sales before occupation or completion, for two reasons – (a) He is not supplying construction service, as deeming provision requires supply of construction service (b) He is not in the business of sale of apartments.

1.10 Tax is Payable When Advance is Received

Since construction of complex is ‘service’, time of supply is when invoice is raised or payment is received, whichever is earlier, as per section 13(2) of CGST Act.

If advance is received towards provision of service, that will be treated as time of supply – Uttar Pradesh Avas Evam Vikas Parishad In re (2021) 86 GST 579 = 127 taxmann.com 828 (AAAR – UP) [Really, at that time, tax invoice is not issued, only receipt voucher is issued and strictly, what is paid at that time is not ‘tax’].

2. Definitions of Various Terms Used

Various terms are used in the new scheme of GST on real estate. These are explained below.

2.1 Affordable Residential Apartment

As per para 4 clause (xvi) to Notification No. 11/2017-CT (Rate) and 8/2017-IT (Rate) both dated 28-6-2017 inserted w.e.f. 1-4-2019, the term “affordable residential apartment” shall mean, —

(a) a residential apartment in a project which commences on or after 1-4-2019, or in an ongoing project in respect of which the promoter has not exercised option in the prescribed form to pay central tax on construction of apartments at the rates as specified for item (ie) or (if) against serial number 3, as the case may be, having carpet area not exceeding 60 square meter in metropolitan cities or 90 square meter in cities or towns other than metropolitan cities and for which the gross amount charged is not more than forty five lakhs rupees.

For the purpose of this clause, —

(i) Metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR) with their respective geographical limits prescribed by an order issued by the Central or State Government in this regard.

(ii) Gross amount shall be the sum total of: —

(A) Consideration charged for the services specified at items (i) and (ic) in column (3) against Sl. No. 3 in the Table [cannot understand what is meant as there are no such items against Sl. No. 3]

(B) Amount charged for the transfer of land or undivided share of land, as the case may be including by way of lease or sub-lease; and

(C) Any other amount charged by the promoter from the buyer of the apartment including preferential location charges, development charges, parking charges, common facility charges etc.

However, ‘gross amount charged’ shall not include stamp duty payable to statutory authority, maintenance charges/deposits for maintenance of apartment or maintenance