Summary: The implementation of GST in India has significantly impacted the real estate sector, with varying tax rates based on the type of property and stage of development. The sale of land is exempt from GST, even if developed, as clarified by CBIC Circular No. 177/09/2022. However, GST applies to apartments sold before the issuance of a completion certificate or first occupation. Affordable residential apartments are taxed at 1% without ITC, while other residential apartments are taxed at 5% without ITC. For commercial projects, GST is 5% in residential projects and 12% in non-residential projects with ITC. The developer must ensure that 80% of inputs are from registered suppliers, or pay GST on reverse charge for the shortfall. Works contracts are taxed at 12-18%, depending on the type of apartment. Joint Development Agreements (JDA) involve complex GST rules, including tax liabilities on Transferable Development Rights (TDR) and construction services, which vary based on whether the project is residential or commercial.
Introduction: Since the implementation of GST in India, the real estate sector has undergone significant changes. The GST rates on real estate vary depending on the type of property and its stage of completion.
| Type of Supply | Particulars |
| Sales of Land | As per para 5 of Schedule III read with para 5(b) of Schedule II of CGST Act, Sale of land is treated neither as a supply of goods nor a 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
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| Sales of Apartment or part thereof (including land or not)
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As per para 5 of Schedule III read with para 5(b) of Schedule II of CGST Act, If entire consideration for sale is received ‘after completion certificate or first occupation, whichever is earlier’, the developer (promoter) is not liable to pay GST. |
Hence, it is confirmed that the developer (promoter)) is liable to pay GST only in case that Sales of Apartment or part thereof (including land or not) are made before issuance of completion certificate or before after its first occupation, whichever is earlier.
Here, First Occupation means first occupation of the project in accordance with laws, rules and regulations of State/Central Government or any other authority
To understand GST in the real estate sector, we must have known about the Real Estate (Regulation and Development) Act, 2016. Here is the certain details of that act.
| Particulars of the Real Estate (Regulation and Development) Act, 2016 | |
| Section | Particulars |
| 2(k) | Carpet area means the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment. |
| 2(m) | 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 developer (promoter) to begin development works on an immovable property, as per the sanctioned plan. |
| 2(n) | Common areas means, the stair cases, lifts, staircase and lift lobbies, fire escapes, and common entrances and exits of buildings, the common basements, terraces, parks, play areas, open parking areas and common storage spaces, the premises for the lodging of persons employed for the management of the property, installations of central services such as electricity, gas, water and sanitation, air-conditioning and incinerating, system for water conservation and renewable energy, the water tanks, sumps, motors, fans, compressors, ducts and all apparatus connected with installations for common use, all community and commercial facilities as provided in the real estate project. |
| 2(p) | Competent authority means the local authority or any authority created or established under any law for the time being in force by the appropriate government, which exercises authority over land under its jurisdiction, and has powers to give permission for development of such immovable property. |
| 2(q) | Completion certificate means the completion certificate, or such other certificate, by whatever name called, issued by the competent authority certifying that the real estate project has been developed according to the sanctioned plan, layout plan and specifications, as approved by the competent authority under the local laws. |
| 2(zc) | Local authority means the Municipal Corporation or Municipality or Panchayats or any other Local Body constituted under any law for the time being in force for providing municipal services or basic services, as the case may be, in respect of areas under its jurisdiction. |
| 2(zf) | Occupancy certificate means the occupancy certificate, or such other certificate, by whatever name called, issued by the competent authority permitting occupation of any building, as provided under local laws, which has provision for civic infrastructure such as water, sanitation and electricity. |
| 2(zq) | Sanctioned plan means the site plan, building plan, service plan, parking and circulation plan, landscape plan, layout plan, zoning plan and such other plan and includes structural designs, if applicable, permissions such as environment permission and such other permissions, which are approved by the competent authority prior to start of a real estate project. |
| 2(e) | Apartment whether called block, chamber, dwelling unit, flat, office, showroom, shop, godown, premises, suit, tenement, unit or by any other name, means a separate and self-contained part of any immovable property, including one or more rooms or enclosed spaces, located on one or more floors or any part thereof, in a building or on a plot of land, used or intended to be used for any residential or commercial use such as residence, office, shop, showroom or godown or for carrying on any business, occupation, profession or trade, or for any other type of use ancillary to the purpose specified. |
Floor Space Index (FSI) means total usable area of the plot of land divided by total area of the plot of land, FSI = Carpet area / Common area. FSI determines the maximum amount of construction allowed on a plot of land relative to its size. For example, if a plot of land is 1,000 square meters and the allowable FSI is 1.5, the total floor area permissible for construction would be 1,500 square meters.
Transferable Development Right (TDR) The TDR is a certificate that a property owner receives from the competent authority suggesting that the specific property is available for public use. It allows the developer (promoter) to build over and above the permissible Floor Space Index (FSI). When the Government undertakes compulsory acquisition of land for creating infrastructural projects, it is required to compensate the landowners. The compensation provided by the Government is usually lower than the market rate, and hence they introduced the concept of Transferable Development Rights. These rights are obtained in the form of certificates, which the owner can use for himself or can trade in the market for cash.
Which projects are exempt from the ambit of the Real Estate (Regulation and Development) Act, 2016?
As per section 3(2), the following projects do not require to be registered under the Act.
1. Where the area of land proposed to be developed does not exceed five hundred square meters or the number of apartments proposed to be developed does not exceed eight, inclusive of all phases.
2. Where the developer (promoter) has received completion certificate for a real estate project prior to commencement of this Act.
3. For the purpose of renovation or repair or re-development which does not involve marketing, advertising selling or new allotment of any apartment, plot or building, as the case may be, under the real estate project.
Rates of GST applicable on construction of residential apartments
| Description | Effective rate of GST (after deduction of value of land) |
| Construction of affordable residential apartments | 1% without ITC |
| Construction of residential apartments other than affordable residential apartments | 5% without ITC |
Affordable residential apartment is a residential apartment in a project which having carpet area up to 60 square meter in metropolitan cities and 90 square meter in cities or towns other than metropolitan cities and the gross amount charged for which, by the developer (promoter) is not more than forty five lakhs rupees.
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.
Metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, and Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR) with their geographical limits prescribed by Government.
Rates of GST applicable on construction of commercial apartments
| Description | Effective rate of GST (after deduction of value of land) |
| Construction of commercial apartments in a Residential Real Estate Project | 5% without ITC |
| Construction of commercial apartments in a Real Estate Project (REP) other than Residential Real Estate Project (RREP) | 12% with ITC |
GST is payable on reverse charge basis
The developer (promoter) shall purchase at least 80% of the value of input and input services, from registered suppliers. The developer (promoter) has to pay GST @ 18% on reverse charge basis on all such inward supplies (to the extent short of 80% of inward supplies from registered supplier) except cement, is 28%.
In case of capital goods purchased from unregistered person, the developer (promoter) is liable to pay GST under reverse charge.
GST on works contract services
The rate of tax applicable on the work contract service provided by a contractor to a the developer (promoter) for construction of a real estate project shall be 12% for affordable residential apartments, 18% for residential apartments other than affordable residential apartments and 18% for commercial apartments.
As per section 2(119) of the CGST Act, works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.
The contractor may charge tax on the works contract service provided by him to a promoter at the concessional rate of 12% under notification No. 11/2017- CTR dated 28.06.2019, S. No.3, entry (va) on the basis of a declaration by the developer (promoter) to the contractor that the project meets the conditions prescribed for concessional rate of GST on works contract service prescribed under the said entry.
GST on Transfer of Development Rights (TDR), Floor Space Index (FSI) and long-term lease of land
Supply of TDR or FSI or long term lease of land used for the construction of affordable residential apartments or residential apartments other than affordable residential apartments that are booked before issuance of completion certificate or first occupation, is exempt from payment of GST, but after issuance of completion certificate or first occupation, it is taxable.
Supply of TDR or FSI or long-term lease of land used for the construction of commercial apartments is taxable whether it is booked before completion certificate or first occupation or after completion certificate or first occupation.
| GST rate on Transfer of Development Rights (TDR), Floor Space Index (FSI) and long term lease of land | |
| Supply of TDR or FSI or long term lease of land used for the construction of affordable residential apartments | 1% on reverse charge basis by the developer (promoter) |
| Supply of TDR or FSI or long term lease of land used for the construction of residential apartments other than affordable residential apartments | 5% on reverse charge basis by the developer (promoter) |
| Supply of TDR or FSI or long term lease of land used for the construction of commercial apartments | 18 on reverse charge basis by the developer (promoter) |
GST on Joint Development Agreement
A Joint Development agreement is a contract between a landowner and real estate the developer (promoter) to build a new project on the land of the owner. There are two kinds of Joint Development Agreement and they are:
There is no exemption on TDR or FSI (Addl. FSI) for construction of commercial apartments. Therefore, GST shall be payable on TDR or FSI (including additional FSI) or both used in respect of (i) carpet area of commercial apartment and (ii) un-booked residential apartments as on the date of issuance of Completion Certificate or first occupation of the project for the purpose of formula.
Three types of transactions can occur in every JDA, and accordingly, the GST is applied to those transactions:
1. The landowner transfers development rights to the developer (promoter).
2. The developer (promoter) transfers construction services to the landowner
3. Sale of the developed area by the developer (promoter) or landowner
The landowner transfers development rights to the developer (promoter).
The developer (promoter) shall be liable to pay GST on TDR transferred by any person whether registered or not on RCM basis and the landowner shall not be entitled to avail ITC. Value of TDR, shall be equal to the amount charged by the developer (promoter) for similar apartments from the independent buyers booked on the date that is nearest to the date on which such development rights or FSI is transferred by the landowner to the developer (promoter).
The developer (promoter) transfers construction services to the landowner
The developer (promoter) shall be liable to pay GST on TDR transferred by any person whether registered or not on forward charges basis and the landowner shall not be entitled to avail ITC. Value of TDR, shall be equal to the amount charged by the developer (promoter) for similar apartments from the independent buyers booked on the date that is nearest to the date on which such development rights or FSI is transferred by the landowner to the developer (promoter).
Sale of the developed area by the developer (promoter) or landowner
The developer (promoter) shall be liable to pay GST on TDR transferred by any person whether registered or not on forward charges basis and the landowner shall not be entitled to avail ITC.
GST on additional charges
As part of sale of housing property, various charges are recovered by the developer (promoter) from the customer in addition to the Basic Sale Price (such as preferential location charges for esteemed properties). These charges are inextricably linked to the sale of property as such charges would not be payable if the customer would not have bought the house. Similar charges are recovered in case of car parking charges, club house/amenities charges, etc.
The GST Act provides the concept of a composite supply, which include a supply consisting of two or more goods or services or a combination of goods, or services, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business. In case of composite supply, the supply is taxed as per rate applicable on the principal supply. The charges recovered by the developer (promoter) in form of preferential location, car parking etc. are part of a composite supply in which the principal supply is construction of complex.
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