Sale of land and sale of building are among the most valuable transactions in India. Yet under GST, pure sale of land and sale of a completed building are outside the GST net. However, sale of under-construction property attracts GST. Understanding this distinction is critical for developers, buyers, investors and legal advisors.
The Statutory Position
Sale of Land Is Outside GST
Entry 5 of Schedule III to the CGST Act, 2017, as amended, states that sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building are activities or transactions which shall be treated neither as a supply of goods nor a supply of services.
This means that sale of land, whether agricultural or non-agricultural, is not a supply under GST. No GST is payable on the sale of land as such.
Sale of Building Is Outside GST, Subject to Exception
Schedule III also excludes sale of building from GST. But the exclusion is subject to clause (b) of paragraph 5 of Schedule II. This clause provides that construction of a complex, building, civil structure or part thereof, including a complex or building intended for sale to a buyer, wholly or partly, is a supply of services, except where the entire consideration has been received after issuance of completion certificate, where required, or after its first occupation, whichever is earlier.
Therefore, the position is:
- Sale of a completed building after completion certificate or first occupation is outside GST.
- Sale of an under-construction building before completion certificate or first occupation is taxable as a supply of construction services.
Why This Distinction Matters
The distinction between land, building and construction services affects taxability, valuation, input tax credit and buyer liability.
Under-Construction Property Is a Service
When a developer sells an apartment in a project that is under construction, the transaction is not a sale of immovable property but a service of construction. GST applies at the rate prescribed for construction services.
Ready-to-Move-In Property Is Outside GST
If the developer obtains a completion certificate or the buyer moves in and receives possession after first occupation, the sale of the building is no longer a supply. The buyer does not pay GST. The developer cannot charge GST.
Sale of Land vs Sale of Building
Sale of land is always outside GST, irrespective of whether the land is developed, plotted or undeveloped. But when a plot is sold along with development of basic infrastructure like roads, drainage, water supply, etc., the transaction may involve a service component. However, sale of land per se does not attract GST.
Development Rights and TDR
Transactions involving Transferable Development Rights (TDR) and development rights under joint development agreements have been subject to GST.
- Transfer of development rights by the landowner to the developer is treated as a supply of service.
- GST is payable on the value of development rights under reverse charge in certain cases.
- Subsequent sale of constructed flats by the developer to the landowner and other buyers is subject to GST depending on completion status.
Notification No. 12/2017-Central Tax (Rate) and related notifications prescribe the valuation mechanism for development rights. This area is complex and has been litigated.
Joint Development Agreements (JDA)
In a typical JDA:
- Landowner gives land to developer.
- Developer constructs and gives a share of units to the landowner.
- Developer sells remaining units to buyers.
The transaction involves:
- Supply of development rights by landowner to developer (taxable).
- Construction services by developer to landowner and buyers (taxable if under construction).
- Sale of land by landowner may be outside GST.
The valuation of development rights and the timing of tax have been clarified through notifications.
Input Tax Credit for Developers
Developers of under-construction property can claim input tax credit on goods and services used for construction, subject to Section 17 and restrictions. For ready-to-move-in property sold after completion, ITC is generally not available as the output is non-taxable. Developers must reverse common credit.
Practical Points
- A buyer purchasing a ready flat should ensure no GST is charged.
- A buyer purchasing an under-construction flat should pay GST at the applicable rate and claim no ITC (since the buyer is not using it for business usually).
- Developers must determine whether completion certificate has been issued or first occupation occurred.
- Sale of land as a standalone is outside GST, but sale of developed plots with infrastructure may have service elements.
- Joint development and redevelopment projects require careful GST planning.
How Anuj Desai & Associates Can Help
We advise developers, landowners and buyers on GST implications of property transactions, development agreements, TDR, completion certificate issues and input tax credit. Our team structures transactions to optimise GST cost and compliance.
Contact Anuj Desai & Associates
Email: office@anujdesaiassociates.com
Phone: 9619456656
Website: https://anujdesaiassociates.com
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