GST on Real Estate — Under Construction, Ready to Move and Rental 2025

GST on Real Estate — Under Construction, Ready to Move and Rental 2026

GST on real estate is governed by one central principle: a property under construction is a service; a completed property is immovable goods. Services attract GST; immovable goods do not. From that distinction flow three distinct rate structures — 1%, 5% or 12% depending on project type — an outright exemption for ready-to-move flats, and a rental-income treatment that splits three ways depending on who your tenant is and whether they hold a GST registration. This guide works through every scenario with actual Rs. numbers for FY 2026-27.

The GST Framework for Real Estate: Why Construction Stage Determines Everything

Under Entry 5(b) of Schedule II to the CGST Act, 2017, the sale of a flat or unit in an under-construction project is deemed to be a supply of service — specifically, a works-contract service. That classification means GST applies in the same way it applies to any construction contract, and both the builder and the buyer carry specific obligations.

The moment a competent authority issues a completion certificate (CC) — or the first occupant takes possession of any unit in the building, whichever comes earlier — the property crosses a statutory threshold. From that point onward, a sale is treated as a transfer of immovable property, which sits squarely in Schedule III of the CGST Act as a non-supply. Only state stamp duty and registration charges apply.

This construction-stage rule pre-dates the 2019 overhaul. What Notification No. 03/2019-CT(Rate) and Notification No. 04/2019-CT(Rate) (effective 1 April 2019) changed was the rate architecture and ITC treatment, replacing the earlier 12%/8% structure with the current 5%/1% framework and stripping ITC from residential projects entirely. For FY 2026-27, that 2019 structure continues without revision.

GST on Under-Construction Property: Rates, Thresholds and the Real Cost of "Without ITC"

There are three rate buckets for under-construction real estate. The applicable rate is fixed at the project level, not the buyer level.

Affordable Housing: 1% Without ITC

An "affordable residential apartment" as defined in the 2019 notifications attracts GST at 1% (effective rate on total consideration) with no ITC for the promoter.

To qualify, both conditions must be met simultaneously:

• Carpet area: ≤ 60 sq m for units in metro cities (Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai MMR); ≤ 90 sq m in any other city or town
• Consideration: Does not exceed Rs. 45 lakh

A unit measuring 55 sq m with a Rs. 52 lakh price tag does not qualify — it misses the value cap and falls into the 5% bucket automatically. The builder's marketing label of "affordable" is irrelevant; the notification thresholds control.

Other Residential Projects: 5% Without ITC

All residential apartments that fail either affordable-housing condition attract GST at 5% without ITC. This covers the vast majority of new launches in Tier-1 cities, where prices have moved well past Rs. 45 lakh. There is no opt-out — the promoter cannot elect to charge 12% with ITC on residential units.

Commercial Real Estate: 12% With ITC

Shops, offices, IT parks, warehouses and all non-residential units attract GST at 12% with full ITC. Both promoter and buyer (if registered) can claim ITC through the chain. In mixed-use buildings, each unit is classified and rated separately — a commercial podium within a residential tower is taxed at 12%, the residential floors at 5%.

What "Without ITC" Costs You in Practice

When a developer cannot recover ITC on cement, steel, tiles, contractor invoices or professional fees, that blocked credit does not disappear — it flows into project cost and surfaces in the flat price. The embedded cost from blocked ITC is broadly 4–5% of construction value. You are paying 5% GST plus that embedded cost built into the base price. The 2019 rate cut from 12% to 5% was partly absorbed by this mechanism — buyers did not receive the full optical saving.

Worked Example: Total Cost Across Three Flat Types (FY 2026-27)

Run this comparison before signing any agreement.

Scenario A — Affordable under-construction flat (Pune periphery)

• Carpet area: 58 sq m | Consideration: Rs. 42,00,000 ✓ both thresholds met
• GST at 1%: Rs. 42,000
• Stamp duty at 5% (Maharashtra): Rs. 2,10,000
• Registration at 1%: Rs. 42,000
• Total outflow: Rs. 44,94,000

Scenario B — Non-affordable under-construction flat (Mumbai suburbs)

• Carpet area: 72 sq m | Consideration: Rs. 1,20,00,000
• GST at 5%: Rs. 6,00,000
• Stamp duty at 5%: Rs. 6,00,000
• Registration at 1%: Rs. 1,20,000
• Total outflow: Rs. 1,33,20,000

Scenario C — Ready-to-move flat in the same building (CC already issued)

• Market premium baked in: Rs. 1,28,00,000
• GST: Nil
• Stamp duty at 5%: Rs. 6,40,000
• Registration at 1%: Rs. 1,28,000
• Total outflow: Rs. 1,35,68,000

The Rs. 8 lakh premium on the ready-to-move flat is nearly offset by the Rs. 6 lakh GST saving. Add the risk of construction delay and pre-EMI interest cost on an under-construction unit, and the true cost differential narrows further. Run this model for every specific project before assuming the under-construction price is cheaper.

Ready-to-Move Property: When GST Falls Away and What Triggers That

The zero-GST status rests on two alternate triggers, either of which is sufficient:

1. Completion Certificate issued by the municipal corporation or relevant development authority, OR
2. First occupation of the building — the first time any person takes possession for residence or commercial use

If neither has occurred, GST applies — even if the builder has assured you the building is "practically ready" or the OC is pending for formalities.

Checklist Before Signing

• Obtain a copy of the CC or OC before execution of the sale deed. An Occupancy Certificate grants permission to inhabit; a Completion Certificate confirms structural completion. Both are acceptable triggers under GST law, and their date controls your liability.
• If the CC is dated before your sale deed is executed, no GST is leviable — even if your original booking agreement was signed before the CC.
• If you signed an allotment letter or agreement to sell before CC but took possession after CC, verify that the builder did not continue issuing GST invoices post-CC. Recovering wrongly charged GST from a developer is difficult; preventing it is far easier.

The "First Occupation" Edge Case

The first-occupation trigger operates building by building or phase by phase as per the applicable CC structure. In a large phased project, Phase 1 reaching first occupation does not extinguish GST on Phase 2 units. If your unit is in a distinct phase or tower with its own CC, check that specific CC — do not rely on any mention of another tower's completion.

GST on Rental Income: Three Scenarios, Three Different Answers

Rental income treatment under GST changed materially in July 2022, and many landlords and tenants are still operating on assumptions that are now incorrect.

Scenario 1 — Residential Dwelling to an Unregistered Individual for Personal Use

GST: Exempt

When your tenant is an individual renting the flat as their personal residence and they do not hold a GST registration, the transaction is fully exempt. The landlord has no GST obligation regardless of rental quantum or aggregate turnover from this source alone.

Scenario 2 — Residential Dwelling to a Registered Person

GST: 18% under Reverse Charge Mechanism (RCM)

Effective 18 July 2022, Notification No. 05/2022-CT(Rate) made this the most consequential change in real-estate GST in recent years. When any GST-registered person (company, LLP, partnership, proprietorship) takes a residential dwelling on rent, GST at 18% is payable under RCM by the registered tenant. The landlord does not collect it; the landlord need not even be registered.

Worked example:

• XYZ Technologies Pvt. Ltd. (GST-registered) rents a 3BHK flat for its CFO at Rs. 60,000 per month
• RCM liability: 18% × Rs. 60,000 = Rs. 10,800 per month
• Annual RCM liability: Rs. 1,29,600
• XYZ must declare this in GSTR-3B under Table 3.1(d) and discharge the liability by the 20th of the following month

Can XYZ claim ITC on this RCM payment? Here is the trap most companies fall into. Under Section 17(5)(b) of the CGST Act, ITC is blocked on goods or services used for the personal consumption of employees. If the flat is occupied exclusively by the CFO as a personal residence, the ITC on RCM is blocked — XYZ pays Rs. 1,29,600 and cannot recover it. If the property is used as a business guest house occupied by multiple employees on rotation and documented as such, an ITC claim may be defensible — but this is actively litigated and demands robust documentation and a formal policy.

Scenario 3 — Commercial Property Rented to Any Tenant

GST: 18% under Forward Charge

Commercial property — shops, offices, showrooms, warehouses — attracts GST at 18% on the rental value, collected by the landlord and remitted under forward charge. The landlord must register for GST when aggregate turnover (rent plus any other taxable supplies) exceeds Rs. 20 lakh in a financial year (Rs. 10 lakh in special-category states listed under Article 279A of the Constitution).

Worked example:

• Mr. Prakash owns a commercial shop in Hyderabad, monthly rent Rs. 2,00,000
• Annual turnover: Rs. 24,00,000 → exceeds Rs. 20 lakh → mandatory GST registration
• Monthly GST at 18%: Rs. 36,000
• Annual GST collected and remitted: Rs. 4,32,000
• Mr. Prakash files GSTR-1 by the 11th of the following month and GSTR-3B by the 20th

The tenant — if GST-registered and using the property for business — can claim full ITC of Rs. 4,32,000 against their output liability. This is a genuine working-capital advantage over the residential-rent RCM scenario where ITC is largely blocked.

The Promoter's 80% Procurement Rule and RCM Exposure

This obligation is under-discussed but carries real financial consequence for developers.

Under Notification No. 02/2019-CT(Rate), promoters of residential projects (affordable or otherwise) must procure at least 80% of total input and input-service value from GST-registered suppliers. If the promoter falls short of this threshold, they must discharge GST under RCM at 18% on the shortfall amount.

Worked example:

• Total eligible input value for a project: Rs. 25 crore
• 80% threshold: Rs. 20 crore must come from registered suppliers
• Actual procurement from registered suppliers: Rs. 16 crore
• Shortfall: Rs. 4 crore
• RCM liability at 18%: Rs. 72 lakh

This Rs. 72 lakh is a cash cost — it cannot be passed on to buyers after agreements are signed, and no ITC offset is available. Promoters who rely on local unregistered labour and material contractors without tracking the 80% ratio throughout the project discover this liability only at year-end or during audit.

Note: Cement and certain other specified inputs, as well as services like Transfer of Development Rights (TDR) and Floor Space Index (FSI), have distinct treatments in the 80% calculation. Project-level tracking requires professional mapping of each procurement category.

Joint Development Agreements: Untangling the Two-Leg GST Problem

A joint development agreement (JDA) between a landowner and a developer creates two independent GST events that must be analysed separately.

Leg 1 — Landowner supplies development rights or TDR/FSI to the developer This is treated as a supply of service. Under the 2019 notifications, the developer (recipient) is liable to pay GST under RCM on the value of development rights. The time of supply is deferred — the liability crystalises when the developer transfers completed units to buyers, or when the CC is obtained, whichever is earlier.

Leg 2 — Developer supplies construction services to the landowner for the landowner's share of units This is a works-contract service. The developer is liable to pay GST at the applicable rate (1% or 5% for residential) on the construction value attributable to the landowner's share. Time of supply again follows the CC or first-possession trigger.

The interaction of deferred time-of-supply, project phasing, and valuation of development rights makes JDA transactions one of the most frequently litigated areas in real-estate GST. If you are a landowner entering a JDA, get the full GST mapping done before signing — tax liability on your net return from the deal can be significant and cannot be renegotiated after execution.

Society Maintenance, Car Parking and Ancillary Charges

Maintenance Charges by an RWA

A Resident Welfare Association (RWA) or cooperative housing society collecting maintenance from members is exempt from GST only when:

• Charges do not exceed Rs. 7,500 per member per month, AND
• The RWA's aggregate annual turnover does not exceed Rs. 20 lakh

Both conditions must hold. If either is breached, GST at 18% applies on the entire maintenance amount — not just the excess. The exemption is all-or-nothing.

Practical check: A society with 150 flats charging Rs. 9,000 per flat per month has an annual turnover of Rs. 1.62 crore and charges above Rs. 7,500. Both limits are breached. GST at 18% applies on the full Rs. 9,000 per flat — that is Rs. 1,620 per flat per month, or Rs. 29,16,000 per year across the society. This amount should be collected from members and remitted — it is not a cost the RWA absorbs.

Car Parking GST Treatment

Whether car parking sold with a flat attracts GST independently has generated inconsistent Advance Rulings across states. The predominant and practically safer position: if parking is sold under the same composite agreement as the residential flat and before CC, it is included in the consideration for the residential unit and taxed at the flat's applicable rate (1% or 5%). If sold or licensed post-CC as a standalone transaction, it is immovable property and falls outside GST.

Buyers should insist on a single composite agreement covering both the flat and the designated parking — this avoids a separate stamp-duty event on the parking and ensures consistent GST treatment.

Common Mistakes That Cost Buyers and Landlords Money

1. Paying GST on a flat after the CC was issued Some builders continue issuing GST invoices for months after the CC date because their accounting system has not been updated. The CC date is verifiable from RERA filings or the municipal corporation portal. If your invoice date is after the CC date, GST was incorrectly charged — document it and seek a refund from the developer.

2. Missing the RCM obligation on residential rent Companies lease residential flats for employees and book the rent as a business expense — but never pay the 18% RCM. This surfaces during a GST audit when the Department cross-references 26AS rent disclosures against GSTR-3B filings. Interest at 18% per annum and a 100% penalty under Section 73 can apply on the entire missed RCM from July 2022 onward.

3. Treating every "affordable" project as qualifying for 1% GST Builders use "affordable housing" as a sales and regulatory label freely. The GST 1% rate requires a strict dual-condition test — carpet area and value cap both satisfied. Verify the carpet area from the RERA registration page and the agreed consideration from the builder-buyer agreement before accepting the 1% rate on your invoice.

4. Forfeiting ITC on commercial rent A GST-registered business paying 18% GST on office or warehouse rent can claim full ITC against its output liability. Many SME owners — particularly those on the QRMP scheme — fail to include commercial rent GST in their monthly ITC reconciliation and effectively overpay net tax.

5. Ignoring state-level stamp duty rebates when comparing under-construction vs. ready-to-move The GST saving on an under-construction affordable unit may be smaller in absolute value than the stamp duty concession available in certain states for first-time buyers or women purchasers. Always model total outflow — base price, GST, stamp duty, registration — before concluding which option is cheaper.

Key Takeaways

• Under-construction residential flats attract GST at 1% (affordable housing — carpet area and value cap both met) or 5% (all other residential) — both without ITC, meaning embedded cost flows into the flat price; the "saving" from lower rates is partially illusory.
• Ready-to-move flats (CC issued or first occupation taken) are entirely outside GST — only stamp duty and registration apply; always verify the CC date against your invoice date before paying.
• Residential rent to an unregistered individual for personal use remains exempt; residential rent to any GST-registered person triggers 18% under RCM on the registered tenant — ITC on that RCM is largely blocked if the flat is used for personal employee accommodation.
• Commercial property rent at 18% under forward charge is fully ITC-eligible for a registered business tenant — factor this recovery into lease-versus-buy and location comparisons.
• The 80% procurement rule is a live project-level compliance obligation for promoters; shortfalls attract 18% RCM on the gap — tracking must happen throughout construction, not at year-end.
• Society maintenance above Rs. 7,500 per member per month or aggregate turnover above Rs. 20 lakh loses the GST exemption entirely — 18% applies on the full charge, not just the excess.
• Model every property transaction as base price + GST + stamp duty + registration + maintenance charges + parking — the GST line is often smaller than the stamp-duty line, and the most tax-efficient choice requires looking at all components together.