Commercial property under GST is governed by two distinct charges that are frequently conflated. The leasing or renting of commercial immovable property attracts 18% GST on the full consideration where the supplier is registered and the recipient is in India. The sale of an under-construction commercial unit attracts GST at 18% on the contract value after a one-third deduction towards land, producing an effective rate of approximately 12% of the agreement value. A ready-to-move commercial property sold after a completion or occupancy certificate is outside the charge of GST, subject to the payment-before-certificate exception discussed below.
The Lease Charge: 18% on the Full Consideration
Commercial leasing is not subject to the residential exemption. Renting of non-residential immovable property is taxable at 18%, whether the arrangement is styled as a lease, a licence, a leave-and-licence, a long-term lease with an upfront premium, or a business-centre membership. The SAC is 9972, described as rental or leasing services involving own or leased non-residential property. The supplier must register once aggregate turnover crosses ₹20 lakh (₹10 lakh in the special category states specified for services), and aggregate turnover includes lease receipts across all properties held by the same PAN.
Two structural points require attention. First, the place of supply for a leased commercial property is the location of the immovable property under the specific rule for services in relation to immovable property, not the location of the recipient’s registered office. A landlord in one state leasing to a tenant registered in another must apply IGST where the property is in a third state; the tenant’s GSTIN does not override the property-location rule. Second, where the lease is structured as a long-term lease with an upfront premium, the premium is consideration for the lease supply and is not converted into a sale of immovable property merely by the length of the term.
The Under-Construction Sale: 18% on Two-Thirds, Effective 12%
The sale of an under-construction commercial unit is a supply of construction services. The rate is 18% applied to the contract value after deducting one-third towards land, producing an effective rate of roughly 12% of the agreement value. The one-third land deduction is a valuation rule, not an exemption; the taxable value is two-thirds of the consideration, and the 18% rate is applied to that taxable value.
The critical restriction is the ITC asymmetry. The developer constructing a commercial unit for sale ordinarily cannot claim input tax credit on the construction inputs, because Section 17(5)(c) and (d) of the CGST Act block credit on works contract services and goods or services used for construction of immovable property on the developer’s own account, except in specified cases. The buyer of an under-construction commercial unit generally cannot claim the GST either, because the buyer is acquiring an immovable property for its own account and the credit is blocked on the recipient side as well. The GST on the under-construction purchase therefore becomes a cost embedded in the acquisition.
Ready-to-Move Commercial Property
A commercial property sold after a completion certificate or first occupancy certificate is outside GST as a sale of immovable property. The payment-before-certificate exception applies with equal force to commercial property: any payment made before the certificate can attract GST on the construction supply, even if the conveyance occurs after the certificate. The buyer and seller should map the payment schedule against the certificate date and retain the certificate as the operative document.
The ITC Position on Lease Rentals
The tenant of a commercial property who is registered under GST can ordinarily claim input tax credit on the lease rental where the invoice is in the tenant’s name with the correct GSTIN and the property is used in the course or furtherance of business. The credit is subject to the general conditions in Section 16 and the apportionment rules where the property is used partly for taxable and partly for exempt supplies. The landlord’s ITC position is more restricted: credit on construction or fit-out of the leased property is generally blocked, and the landlord’s output tax on the lease is not matched by a full credit stream.
What the Parties Should Control
The commercial property outcome depends on four variables: whether the transaction is a lease (18% on full value) or an under-construction sale (18% on two-thirds); whether a completion certificate preceded the sale; whether the payment sequence triggers the payment-before-certificate exception; and whether the tenant’s invoice supports credit. The parties that separate these variables and document each leg are better placed than those that treat commercial property as a single undifferentiated rate.
Call to Action: We advise developers, landlords and corporate tenants on commercial property GST, lease structuring, under-construction valuation and ITC reviews. For a transaction-specific analysis, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.