The sale of a completed residential flat is treated differently from the sale of an under-construction flat for GST purposes. Once a completion certificate or first occupancy certificate has been issued by the competent authority, the sale of the flat is treated as a sale of immovable property, which is outside the charge of GST. The technical issue is not the principle; it is the date. Payments made before the completion certificate can attract GST even if the sale is completed after the certificate, and the documentary sequence determines the outcome.
The No-GST Position for Completed Flats
Where a completion certificate or first occupancy certificate has been issued before the sale, GST is not applicable on the sale of the constructed building or ready-to-move-in flat. The rationale is that the transaction is a sale of immovable property, and the GST law does not charge a supply of immovable property by way of sale. The position applies to ready-to-move-in flats with a valid completion or occupancy certificate, and it applies to resale flats.
The date of the certificate is the operative fact. The buyer and the seller should obtain and retain the completion or occupancy certificate and should be able to connect the certificate date to the date of the sale agreement and the payment schedule.
The Payment-Before-Certificate Exception
The no-GST position is not available where any payment towards the flat has been made before the completion certificate or first occupancy certificate is issued. In that case, GST applies to the total amount, notwithstanding that the certificate is issued before the sale is completed. The rationale is that the payment before the certificate is consideration for a supply of construction services, which is taxable.
The practical implication is that a buyer who books a flat during construction and takes possession after the certificate has been issued cannot claim that the entire transaction is GST-free merely because the certificate preceded the conveyance. The payment timeline determines the GST treatment of the payments made before the certificate. The seller and the buyer should map the payment schedule against the certificate date and should obtain advice where the sequence is mixed.
Affordable Housing and Other Residential Rates
The rate for under-construction affordable residential apartments is 1% without input tax credit, subject to the carpet-area and agreement-value conditions. The rate for other under-construction residential apartments is 5% without input tax credit. These rates apply to the construction-phase supply; they do not apply to a completed flat sold after the completion certificate, which is outside GST.
The classification of a project as affordable housing depends on the carpet area and the agreement value, and the conditions are specified in the rate notifications. A project that does not meet the affordable-housing conditions falls within the other residential category. The builder should not apply the affordable-housing rate to a flat that does not meet the conditions, and the buyer should verify the classification before assuming the rate.
Documentation and the Certificate Date
The completion certificate or occupancy certificate is the central document. The buyer should obtain a copy and should verify the date. The sale agreement, the payment schedule, the invoices and the conveyance deed should be consistent with the certificate date and with the GST treatment adopted. Where the seller has charged GST on payments made before the certificate and has not charged GST on the post-certificate sale, the documentation should show the split clearly.
The seller should retain the certificate, the payment records and the GST returns that report the construction-phase supplies. The buyer should retain the certificate, the sale agreement and the payment proof. In a dispute, the documentary sequence is likely to be determinative.
What the Buyer and Seller Should Control
The GST outcome on a ready-to-move-in flat depends on three variables: whether a completion or occupancy certificate was issued before the sale; whether any payment was made before the certificate; and whether the documentation consistently reflects the certificate date and the payment sequence. The buyer who checks the certificate date before closing and the seller who maps payments against the certificate are managing the material risk.
Call to Action: We advise builders, buyers and investors on GST on ready-to-move-in flats, the payment-before-certificate exception and documentation. For a transaction-specific review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.