GST on Under-Construction Property — 5% and 12% Rates
GST is applicable on the purchase of under-construction residential and commercial properties. The builder or developer charges GST on the consideration received from buyers for under-construction flats, villas, and commercial units. Once the builder obtains the Occupancy Certificate (OC) or Completion Certificate (CC) from the local authority, the property is considered ready-to-move and GST no longer applies on subsequent sales.nnFor under-construction residential properties, the GST rate depends on the affordability classification. Affordable housing units — defined as residential units with a carpet area up to 60 square metres in metropolitan cities (Bengaluru, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai) and 90 square metres in other cities, with the consideration not exceeding Rs.45 lakh — attract GST at 5%. All other under-construction residential properties — larger apartments, luxury flats, villas — attract GST at 12%. Critically, in both cases the builder cannot claim Input Tax Credit on inputs, services, and capital goods used in construction. This no-ITC condition was introduced when rates were reduced from the earlier 8%/12% with ITC to current 5%/12% without ITC.nnFor under-construction commercial properties — offices, shops, retail spaces, and mixed-use commercial buildings — the GST rate is 18% with ITC available for the developer. Buyers of commercial properties purchasing directly from the builder during construction pay 18% GST and can claim ITC if they are GST-registered and use the property for business purposes. This ITC availability makes commercial property acquisition more tax-efficient for businesses compared to residential property purchase.
| Property Type | GST Rate | ITC to Builder | Applicability |
|---|---|---|---|
| Affordable residential (carpet <=60/90 sqm, price <=Rs.45L) | 5% | No | Under-construction only |
| Other under-construction residential | 12% | No | Flats, villas, bungalows |
| Under-construction commercial | 18% | Yes | Offices, shops, retail |
| Ready-to-move residential (OC obtained) | 0% (exempt) | N/A | After OC/CC issued |
| Ready-to-move commercial (OC obtained) | 0% (exempt) | N/A | After OC/CC issued |
| Land purchase | 0% (exempt) | N/A | Sale of bare land |
Ready-to-Move Property — Fully Exempt from GST
The purchase of a ready-to-move property — a residential flat or commercial space where the builder has received the Occupancy Certificate or Completion Certificate from the competent authority — is completely outside the GST framework. No GST is payable by the buyer on the sale consideration. This applies whether the property is purchased directly from the builder (for unsold inventory after OC) or from a previous buyer in the resale market.nnThe GST exemption for ready-to-move property was a deliberate policy decision to avoid double taxation at the time of GST introduction — property already bears stamp duty and registration charges levied by state governments, and adding GST on top would have created a very high tax incidence on property transactions. Instead, GST is charged only during the construction phase to capture the value-addition in building activity.nnFor buyers, this creates an important decision point: purchasing an under-construction flat from a builder attracts GST (5% or 12%), while purchasing the same flat after OC is obtained carries no GST but may have a higher market price. In many cases, builders price pre-OC and post-OC units differently to account for this GST differential. Buyers comparing under-construction and ready-to-move options must factor in the GST cost on under-construction purchases when evaluating the true all-in cost.
GST on Commercial Rent — 18% with ITC
Commercial rent — rent paid for office space, retail shops, warehouses, factories, and other commercial premises — attracts GST at 18%. The landlord of commercial property is required to register for GST if annual rental income exceeds Rs.20 lakh (Rs.10 lakh in special category states) and must charge 18% GST on rent invoices to tenants. Landlords with rental income below these thresholds are not required to register for or charge GST on rent.nnFor tenants renting commercial space from a GST-registered landlord, the 18% GST paid is fully eligible as Input Tax Credit provided the tenant is a GST-registered business using the rented space for taxable supplies. The ITC on commercial rent effectively reduces the net GST cost to zero for most GST-registered business tenants — they pay 18% GST on rent to the landlord and simultaneously claim 18% ITC reducing their output GST liability by the same amount.nnA special provision under Section 9(4) of the CGST Act creates a Reverse Charge Mechanism (RCM) on rent paid to an unregistered landlord by a registered tenant in specified scenarios. In practice, for commercial rent this means a registered business renting from an unregistered landlord (whose rental income is below the Rs.20 lakh threshold) must self-assess and pay GST at 18% under RCM, but can simultaneously claim it as ITC making the net tax cost nil. Businesses should factor in this RCM obligation when budgeting for commercial rent from small landlords.
GST on Residential Rent — RCM for Registered Businesses
The GST treatment of residential rent underwent a significant change from 18 July 2022. Before that date, residential rent was fully exempt from GST. From 18 July 2022, the exemption for residential rent was narrowed: residential property taken on rent by a registered person under GST for use in the course of business (including for employee accommodation) attracts GST at 18% under RCM.nnIn practical terms: if a company, firm, or GST-registered individual takes a residential flat on rent for use as a guest house for visiting clients, as accommodation for company executives, or for any business-related purpose, the tenant must pay 18% GST under RCM. The landlord does not charge GST — the tenant self-invoices and pays. The key practical relief is that the GST-registered tenant can simultaneously claim the 18% RCM GST as Input Tax Credit, making the effective net GST cost nil for registered businesses.nnFor residential property taken on rent by an unregistered individual for personal residential use — the vast majority of residential rentals in India — the position is unchanged. No GST applies and no compliance is required. The RCM provision targets specifically the scenario where a GST-registered entity (company, LLP, firm, or registered individual) takes residential property and uses it for business purposes. Individual employees renting their own accommodation for personal residence are not affected.
GST on Housing Society Maintenance and Common Charges
Residential housing societies collect maintenance charges from their members for maintaining common areas, security, water, lifts, and other common amenities. The GST treatment of housing society maintenance charges follows a threshold structure: if a housing society collects more than Rs.7,500 per member per month in maintenance charges, AND if the society's annual aggregate turnover from all sources exceeds Rs.20 lakh, then the society must register for GST and charge 18% GST on maintenance amounts above Rs.7,500 per member per month.nnWhere both conditions are met, only the amount above Rs.7,500 per month per flat is subject to GST — the first Rs.7,500 per month per flat remains exempt. For example, if a flat pays Rs.10,000 per month in maintenance, GST applies only on Rs.2,500 (the amount above the Rs.7,500 threshold). The full Rs.10,000 is not subject to GST. Most mid-sized housing societies in tier-2 cities with moderate maintenance charges remain below one or both thresholds and need not register for or charge GST.nnHousing societies that are GST-registered can claim ITC on their purchases of goods and services used for common area maintenance — cleaning materials, security services, elevator maintenance contracts, landscaping services. This ITC can partially offset the GST collected from members, reducing the society's net GST payable. Societies that are not GST-registered cannot avail ITC and the embedded GST in their purchases becomes an irrecoverable cost passed on to members.
