Buying an under-construction property in India involves significant GST implications that every homebuyer and developer must understand. The GST regime for real estate has evolved considerably since 2017, with key changes in 2019 that reduced rates and restricted ITC.
This article explains the GST treatment of under-construction property, including rates, ITC restrictions, and buyer implications.
GST Rates on Under-Construction Property
The GST rates for under-construction residential properties are:
- Affordable residential apartments: 1% GST (without ITC).
- Other residential apartments: 5% GST (without ITC).
- Commercial properties: 18% GST (with ITC).
An affordable residential apartment is defined as:
- Carpet area up to 60 sq. m. in metropolitan cities.
- Carpet area up to 90 sq. m. in non-metropolitan cities.
- Gross amount charged not exceeding ₹45 lakh .
ITC Restriction for Developers
Under the current regime, developers of residential properties charging 1% or 5% GST cannot claim ITC on inputs and input services used in construction. This restriction was introduced to simplify compliance and reduce the effective tax burden on homebuyers.
Developers must procure at least 80% of inputs and input services from registered suppliers. If they fail to meet this threshold, they must pay GST at the applicable rate on the shortfall under RCM.
Ready-to-Move Properties
Ready-to-move-in properties where the completion certificate has been obtained are exempt from GST . This exemption applies to the sale of completed flats and does not apply to under-construction properties.
Buyer Implications
For homebuyers:
- GST is payable on the base price of the under-construction property, not on stamp duty, registration charges, or other statutory levies.
- ITC is not available to individual homebuyers for personal use.
- GST is typically included in the builder's price and financed through the home loan.
- Parking charges and club membership fees may attract GST separately.
Compliance for Developers
- Charge the correct GST rate (1%, 5%, or 18%).
- Procure at least 80% of inputs from registered suppliers.
- Pay GST under RCM on the shortfall.
- File GSTR-1 and GSTR-3B.
- Maintain proper records of all transactions.
Conclusion
GST on under-construction property is a significant cost for both developers and homebuyers. Understanding the applicable rates, ITC restrictions, and compliance obligations is essential for all stakeholders.
At Anuj Desai & Associates, we provide expert advisory services on GST for real estate developers, homebuyers, and investors. Our team can help you navigate the complexities of GST on under-construction property.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.