Real EstateConstruction

GST on Construction & Real Estate — Affordable 1%, Regular 5%, Commercial 12%

Complete GST guide for real estate: affordable housing (1%), non-affordable residential (5%), commercial construction (12% with ITC), ready-to-move (exempt), works contract, the 80% input rule, rental income, and TDR/FSI/JDA complexities.

1%

Affordable Housing

5%

Non-Affordable

12%

Commercial Property

0% (Exempt)

Resale (Ready)

12/18%

Works Contract

28%

Cement

18%

Steel (TMT bars)

5%

Sand/Aggregate

Construction & Real Estate — GST Framework

Under-Construction Residential — 1% & 5%

Affordable housing (carpet area ≤60 sqm in metro, ≤90 sqm in non-metro, value ≤₹45 lakh): 1% GST WITHOUT ITC. Non-affordable residential (under-construction): 5% GST WITHOUT ITC. Both effective from April 1, 2019 (33rd Council). Key condition: 80% of inputs must be purchased from GST-registered dealers (else: 18% on shortfall). Land value deemed deduction: 1/3rd of total amount (auto). Previous rate (pre-April 2019): 8% (affordable) and 12% (non-affordable) WITH ITC. Builders chose to surrender ITC for lower headline rate.

Commercial Construction — 12% with ITC

Commercial properties (under-construction offices, shops, malls): 12% GST WITH full ITC (effective rate after land deduction ~8%). Works contract for commercial: 18%. REITs (office buildings sold to REIT): complex — ongoing lease rental exempt, construction phase 12%. Co-working spaces (WeWork, Awfis): 18% on service. Industrial sheds/warehouses: 18% (works contract). SEZ construction: zero-rated (for SEZ developer). Government construction (roads, bridges, dams): 12% works contract. The key: commercial retains ITC unlike residential — makes commercial development relatively GST-neutral.

Ready-to-Move & Resale — EXEMPT

Completed property with OC/CC (Occupancy/Completion Certificate): NO GST — only stamp duty + registration charges apply. Resale of property: exempt from GST (it's sale of immovable property, not service). Rental of residential property: exempt (if tenant uses for residence). Rental of commercial property: 18% GST. This creates perverse incentive: buyers prefer ready properties (0% GST) over under-construction (1-5% GST + risk). Impact: pre-sales slowed post-GST, ready inventory premium increased. JDA (Joint Development Agreement): deemed supply at time of CC — complex valuation.

Works Contract — 12% & 18%

Works contract (composite supply of goods + services for immovable property): (1) Government/government entity: 12% GST. (2) Private commercial: 18% GST. (3) Residential (apartments by builder): treated as construction service (1%/5% — not works contract). Sub-contractor works contract: 18% (full rate — no concessional for sub-contractors since 2022). Key: works contract for MOVABLE property (fabrication, machine erection): 18% (treated as composite supply, not works contract). EPC contracts (Engineering, Procurement, Construction): 18% overall — cannot split goods/services.

Input Tax Credit — The 80% Rule

For 1%/5% residential: NO ITC allowed on inputs. But condition: at least 80% of inputs/input services must be procured from registered dealers. If <80%: tax payable on shortfall at 18% under RCM. This means: builder buying sand from unregistered supplier, cash labor, informal material — must track and self-assess. Cement (28%), steel (18%), electrical (18%), tiles (18%): all input GST is a COST to builder under 1%/5% scheme. Estimated tax stuck in construction value chain: 8-10% of project cost. This is passed to buyer in property price — whether builder charges GST or not.

TDR, FSI, Long-Term Lease

Transfer of Development Rights (TDR): taxable — landowner giving TDR to builder = supply of service. But exempt if: residential project where entire GST paid on constructed units. Floor Space Index (FSI) purchase from authority: 18% GST. Long-term lease of land (30+ years) with premium: treated as sale of land (exempt) under certain conditions. Lease premium by government to developer: RCM. One-time lease premium: if ≥30 years and for industrial use — exempt. Monthly lease rental (commercial): 18%. This area has maximum litigation — JDA/TDR/FSI taxation is the most complex area of real estate GST.

Construction & Real Estate — GST Rate Table

ItemHSN/SACGST RateNotes
Affordable housing (≤₹45L)SAC 99541%No ITC, carpet ≤60/90 sqm
Non-affordable residentialSAC 99545%No ITC, under-construction
Commercial (under-construction)SAC 995412%With ITC, land deducted
Ready-to-move/completedN/A0%Exempt — stamp duty only
Works contract (government)SAC 995412%Roads, bridges, dams
Works contract (private)SAC 995418%Commercial buildings
Cement252328%Key construction input
Steel TMT bars7213-721418%Reinforcement steel
Tiles (ceramic/vitrified)6907-690818%Flooring/wall
Sand & aggregate2505/25175%Natural/manufactured
Commercial rentSAC 997218%Office/shop lease
Residential rentSAC 99720%Exempt (for residence)

Frequently Asked Questions

Is GST applicable on buying a flat — ready-to-move vs under-construction?
Ready-to-move (with OC/CC issued): NO GST. Only stamp duty + registration charges (state government levy, typically 5-7%). Under-construction (OC not issued): GST applicable — 1% for affordable (≤₹45 lakh, carpet ≤60/90 sqm) or 5% for non-affordable. This is ON TOP of stamp duty at time of registration. Example: Under-construction flat ₹80 lakh → GST = ₹4 lakh (5%) + stamp duty ~₹4 lakh = ₹8 lakh total taxes. Same flat after OC (ready): only stamp duty ₹4 lakh. Important: GST is on AGREEMENT VALUE minus 1/3rd (land deduction). So effective GST on ₹80L = 5% of ₹53.3L = ₹2.67 lakh. Many builders absorb GST in advertised price — 'all-inclusive' pricing.
What is the 80% procurement rule for builders and what happens if not met?
Builders availing 1%/5% GST (no ITC scheme) must ensure 80% of their inputs (goods + services) are procured from GST-registered suppliers. If procurement from registered sources falls below 80%: builder must pay GST at 18% on the SHORTFALL portion under Reverse Charge Mechanism. Example: Total project inputs ₹10 crore. From registered dealers: ₹7 crore (70%). Shortfall: ₹1 crore (to reach 80%). Tax on shortfall: ₹1 Cr × 18% = ₹18 lakh additional GST payable. Common shortfall areas: unregistered sand suppliers, casual labor (mistri/mason), rural material suppliers, transport by individual truck owners. Builder must maintain purchase register and compute ratio quarterly. Many builders structure purchases to ensure compliance — preferring registered suppliers even at slightly higher prices.
How is GST calculated when builder provides parking, club membership, and amenities?
Bundled with apartment (composite supply): If parking space, club membership, advance maintenance, electricity/water deposits are part of the SAME agreement/booking — treated as composite supply with apartment being principal supply. GST rate: same as apartment (1% or 5%). Separately charged after possession: (1) Maintenance charges by RWA/society: exempt if total ≤₹7,500/month per member. If >₹7,500: 18% on ENTIRE amount (not just excess). (2) Club membership (separate from flat): 18%. (3) Preferential Location Charges (PLC — floor rise, park-facing): part of flat value — same rate. (4) Car parking (sold separately without flat): 18% GST. Key principle: 'naturally bundled' = single rate. Artificially split = separate rates on each component. Department often challenges builders who separate components to reduce taxable value.
Is there GST on rental income from property?
Residential property rented for RESIDENCE: EXEMPT from GST (regardless of rent amount). Residential property rented for COMMERCIAL use (office in flat): 18% GST. Commercial property (office/shop/godown): 18% GST always. Key change (July 2022 — 47th Council): If registered person takes residential property on rent for business: 18% under RCM (tenant pays). This means: if a company rents a flat for employee housing — 18% GST under RCM by company. Individual renting flat for own residence: still exempt. Registration threshold for landlords: if rental income >₹20 lakh/year AND property is commercial → must register. Residential-only landlords: no registration needed (exempt supply). Mixed use (shop on ground floor, residence above): proportionate — 18% on commercial portion, exempt on residential.

Real Estate Billing — Affordable/Non-Affordable Auto-Classification

Laabam.One auto-applies 1%/5%/12% based on property type and value, handles 1/3rd land deduction, works contract invoicing, 80% input procurement tracking, and commercial rental GST with ITC computation.

Explore GST Law