A real estate transaction is the process whereby rights in a unit of property (or designated real estate) is transferred between two or more parties, e.g. in case of conveyance one party being the seller(s) and the other being the buyer(s).
A “Residential Real Estate Project” means a “Real Estate Project” in which the carpet area of the commercial apartments is not more than 15 per cent. of the total carpet area of all the apartments in the project.
As per GST law, the activity of construction of complex, buildings, civil structures or part thereof is covered within the meaning and scope of works contracts services as defined in Sec 2(119) of CGST Act, 2017 and it is a supply of services.
As per Para 5 of Schedule III of CGST Act, 2017 Sale of land & building (where the entire consideration has been received after issuance of completion certificate or after its first occupation, whichever is earlier) is neither supply of goods nor supply of services.
As per CBIC Circular No. 177/09/2022-TRU Dated 3rd August 2022, Land may be sold either as it is or after some development such as levelling, laying down of drainage lines, water lines, electricity lines, etc. It is clarified that sale of such developed land is also sale of land and is covered by Sr. No. 5 of Schedule III of the Central Goods and Services Tax Act, 2017 and accordingly does not attract GST.
As per Para 5(b) of Schedule II of CGST Act, 2017, construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier is a supply of service. For levy of GST, there should be an underlying supply of goods or services, or both, for a consideration in the course or furtherance of business.
So, GST is applicable only on under construction building, flat & apartment including commercial property (Shops, godowns , offices etc.) and not on sale or transfer of property after issuance of completion certificate or after its first occupation.
Rate of GST on Real Estate Transaction.
| Sl No. | Type of property | Effective rate of GST (After 1/3rd deduction for value of land) Before 1st April 2019 | Effective rate of GST (After 1/3rd deduction for value of land) W.e.f 1st April 2019 |
| 1 | Residential Property (affordable housing scheme) | 8% with ITC | 1% with out ITC on total consideration |
| 2 | Residential Property (Non-affordable housing scheme) | 12% with ITC | 5% with out ITC on total consideration |
| 3 | Commercial properties (Shops, godowns , offices etc.) | 12% with ITC | 5% with out ITC on total consideration (Constructions in RREP) |
| 12% with ITC on total consideration (Constructions in REP) |
Note : The rates given above is after one-third deduction for the value of land
A) Conditions for new tax rate:
a) Input tax credit shall not be available
b) 80% of inputs and input services shall be purchase from registered persons. On shortfall of purchases from 80%, tax shall be paid by the builder on RCM basis.
c) Services by way of grant of development rights, long-term lease of land (against upfront payment in the form of premiums, ‘salami’, development charges, etc.) or FSI (including additional FSI), electricity, high-speed diesel, motor spirit and natural gas will not form a part of the value of procurements for the purpose of 80% procurement condition as given above.
d) Developers are liable to pay tax at the rate of 18% on a shortfall in the value of procurements, except in the case of cement and capital goods, wherein tax is liable to be paid at the applicable rate as per the tariff. Any tax paid under reverse charge on input and input services will be deemed to have been procured from registered persons.
e) Procurements from registered and unregistered persons will be maintained project-wise and should be reported with the shortfall, along with the tax payment, by 30 June of the following financial year. However, tax on cement received from unregistered persons is to be paid in the month in which the cement is received. Input tax credit that has not been availed needs to be reported every month by reporting it as ineligible credit in GSTR-3B.
B) Valuation of Supply
The value of construction services provided by developers in lieu of development rights or FSI, will be deemed to be equal to the total amount charged for similar apartments in the project from independent buyers other than landowners nearest to the date of transfer of such development rights or FSI, less the value of land.
For landowners, the value of supply of services by way of transfer of development rights or FSI by a person in lieu of residential or commercial apartments will be deemed to be equal to the value of similar apartments charged from independent buyers nearest to the date of transfer of development rights or FSI.
C) Definition / clarification issued by TRU , Govt of India Dated 7th May 2019
1) Affordable housing:
A residential house/flat of carpet area of up to 90 sqm in non-metropolitan cities/towns and 60 sqm in metropolitan cities having value up to Rs. 45 lacs (both for metropolitan and non-metropolitan cities). Metropolitan Cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, and Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR).
2) Ongoing Projects:
A project which meets the following conditions shall be considered as an ongoing project.
(i) Commencement certificate for the project, where required, has been issued by the competent authority on or before 31stMarch, 2019, and it is certified by a registered architect, chartered engineer or a licensed surveyor that construction of the project has started (i.e. earthwork for site preparation for the project has been completed and excavation for foundation has started) on or before 31st March, 2019.
(ii) Where commencement certificate in respect of the project, is not required to be issued by the competent authority, it is to be certified by any of the authorities specified in (a) above that construction of the project has started on or before the 31st March, 2019.
(iii) Completion certificate has not been issued or first occupation of the project has not taken place on or before the 31st March, 2019.
(iv) Apartments of the project have been, partly or wholly, booked on or before 31st March, 2019.
At least some apartments in the project should have been booked prior to 1 April 2019. At least one instalment should have been received from the flat buyer and should be credited to the bank account of the promoter.
3) RREP (Residential Real Estate Projects) :
A “Residential Real Estate Project” means a “Real Estate Project” in which the carpet area of the commercial apartments is not more than 15 per cent. of the total carpet area of all the apartments in the project.
4) Commencement certificate
“commencement certificate” means the commencement certificate or the building permit or the construction permit, by whatever name called issued by the competent authority to allow or permit the promoter to begin development works on an immovable property, as per the sanctioned plan
5) What is the criteria to be used by an architect, a chartered engineer or a licensed surveyor for certifying that construction of the project has started by 31st March, 2019
Construction of a project shall be considered to have been started on or before 31stMarch, 2019, if the earthwork for site preparation for the project has been completed, and excavation for foundation has started on or before the 31stMarch, 2019.
6) What shall be the classification of and rate of tax applicable to works contract service provided by a contractor to a developer or promoter under the new dispensation effective from 01-04-2019 for
(i) New project after 1.4.2019 and ongoing projects where option has been exercised for new rate and
(ii) Ongoing projects where option has not been exercised for new rate?
The rate of tax applicable on the work contract service provided by a contractor to a promoter for construction of a real estate project shall be 12% or 18% depending upon whether such work contract service is provided for construction of affordable residential apartments or residential apartments other than affordable residential apartments. Rate of tax applicable on such work contract service provided by a contractor to a promoter on construction of commercial apartments shall be 18%(irrespective of option exercised by developer-promoter).The relevant entries of the notification are at items (iv), (v), (va) and (vi) against sl. no. 3 of the table in Notification No. 11/2017-Cenral Tax (rate) dated 28-06-2017 prescribing rate of 12% for works contract services of construction of affordable apartments/ apartments being constructed under schemes specified therein. In case of works contract services for construction of other apartments, rate of 18% as prescribed in item (xii) against sl. no. 3 of the table in Notification No. 11/2017-Cenral Tax (rate) dated 28-06-2017 shall be applicable.
7) Can a developer take deduction of actual value of Land involved in sale of unit instead of taking deduction of deemed value of Land as per Paragraph 2 to Notification No. 11/2017-CTR ?
No. Valuation mechanism prescribed in paragraph 2 of the notification No. 11/2017- CT (R) dated 28.06.2017 clearly prescribes one- third abatement towards value of land.
8) Land Owner being an individual is not engaged in the business of land relating activities and thus whether the transfer of development rights by an individual to a promoter is liable for GST and whether the same will fall within the scope of “Supply‟ as defined in Section 7 of CGST / SGST Act, 2017?
The term business has been assigned a very wide meaning in the CGST Act and it includes any trade, commerce, manufacture, profession, vacation, adventure, or any other similar activity whether or not it is for a pecuniary benefit irrespective of the volume, frequency, continuity or regularity of such activity or transaction. Therefore, the activity of transfer of development rights by a land owner, whether an individual or not, to a promoter is a supply of service subject to GST.
9) Can a buyer excise option to pay tax at new or old rate in respect of balance instalments after April 2019 in respect of flat/apartment booked prior to 1st April 2019 and paid some instalments with 12% GST ?
The buyer cannot exercise option to pay tax at the new or old rates. It is the builder, who has to exercise the option to pay tax on construction of apartment .
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*The author is a Fellow member of The Institute of Chartered Accountants of India, New Delhi and Fellow member of The Institute of Cost Accountants of India, Kolkata. He can be reached at gstresolve@gmail.com , Mob .9805072910
Author Bio
Thank you for your elaboration Sir. Pl elaborate on the liability of a Builder to pay GST on sale of a residential flat after receipt of Completion Certificate.
I wish to mention that the Para 5 of Schedule III read with Clause (b) of Para 5 of Schedule II exempts such Sale. Sl.No.41A added to Table vide Notification dated 29 March 2019 also exempts such sale.
Kindly suggest and enlighten me on the subject.
Hoping for an early reply .
Thanking you very much in anticipation
Yours Sincerely
MM Jagannadha Rao, CLS
Deputy Chief Labour Commissioner Retd
we bought an apartment in a residential complex,Developer/Pramoter Charged GSTN in different heads including apartment but didn’t gave any GSTN bill and Money Receipt also doesn’t have GSTN No.
What Should buyer do in such circumstances
Dear Sir,
We have entered into a Sale Agreement for purchase of a residential flat after receiving Occupancy Certificate in an Apartment which was constructed by Developer with a Development Agreement. Now Builder’s Auditor is insisting that we have to pay GST. Our view is not to pay.
As per Schedule III Para 5, it is exempted. Pl clarify.
Thanking you
Regarding deduction of land value @ 1/3rd {Refer Q7), it should have mentioned about Gujarat HC judgement in respect of Munjaal Manishbhai Bhatt {2022(62)GSTL 262 (guj)}, also
thanks for your detailed explanation sir. I have below listed questions in this RREP.
1. In respect developement agreement between builder and land owner there will be sharing between them in the form of flats. My question is whether the builder is liabile to pay GST on landowners share of flats after received the completion certificate ? If tax has to be paid what is the calculation ?
2. What is the procedure to be followed if land owner sales his share of flats to others before receiving the competion certificate. Who is liable to pay GST ? also explain the procedure of payment of GST TAX.
Thank you Sir,
In a JDA, there are two underlying transactions – transfer of development rights by the landowner in lieu of construction services and supply of construction services by the developer in lieu of development rights.
1) For the builder, the point of taxation under GST will arise at the time when the developer transfers the possession or the right in the constructed property to the landowner by entering a deed of conveyance or instrument such as an allotment letter.
The value of supply will be open market value of said construction service or value of similar goods or services.
2) Landowner is required to pay GST on sale of his share of flats while the property is under construction. The land is require to obtain GST registration & pay tax.
Thanks for your explanation sir.
Can you explain the procedure to be adopted if land owner share flat has been sold to others before completion certificate issued. Owner has to obtain GST license, he has to issue TAX invoice to the buyyer and collect tax @ 5%.
Builder has to raise B2B invoice to Owner on the value sold to buyyer. The Owner will pay GST Tax to the buider, the builder will remit tax to government.
The above procedure is right ? Please clarify sir. Thank You.