Introduction
Hailed as India’s most important tax reform since independence, the goods and services tax (GST) bill went into effect on July 1, 2017. The Central Goods and Services Tax (CGST) Act, 2017, defines and covers the construction of complexes, buildings, civil constructions, and so forth as works contract services, even though the GST regime does not directly apply to the real estate industry.
GST charges on real estate
| Type of property | GST charged |
| Affordable housing | 1% |
| Residential | 5% without ITC |
| Commercial | 12% |
It should be remembered that GST is only levied on properties that are currently being developed. Ready-to-move-in properties are not subject to GST. A completed project is one that has been issued a completion certificate (CC) by a competent agency.
What is the rate of GST on real estate?
The GST rate on real estate is 1% for affordable properties. Residential properties have a 5% tax rate without the input tax credit (ITC). The GST rate for commercial real estate is 12%.
GST 2025 on real estate
| Ready to move properties | Not applicable |
| Resale | Not applicable |
| Land purchase and sale | Not applicable |
| Under-construction properties (housing bought under CLSS) | 8% |
| Under-construction properties | 12% |
| Works contract | 18% |
| Composite supply of works | 18% |
| Composite supply of works to government authority | 12% |
| Composite supply of use for the general public | 12% |
| Composite supply of works contract for affordable housing | 12% |
What is the impact of GST on real estate?
Since the implementation of the GST in 2017, investment in under-construction properties has become more convenient for the common person, particularly with the repeal of the former tax regime, which levied a bevy of levies on such investments. A unified tax structure—the GST rate on real estate—informs buyers about the various taxes they will have to pay at the time of property acquisition.
The government has also significantly increased investment in affordable residential real estate by lowering the GST rate.
The GST policy has also been quite useful in terms of developer aid. “Under the previous regime, developers were compelled to pay a plethora of taxes, including VAT, Central Excise, Entry Tax, LBT, Octroi, Service Tax, and others, which were not easily offset by the production tax burden. However, the GST regime allows for ITC eligibility on construction and other services acquired, reducing inefficiencies caused by tax cascading,” according to a PwC India report.
GST’s Impact on Stamp Duty and Registration Charges
Despite repeated appeals since the GST regime’s installation to reduce stamp duty and registration taxes on property, the government has made little headway in this area. As a result, stamp duty and registration fees are levied in India on property transfers. While states charge stamp duty in the range of 5%-10%, the registration cost is either 1% of the property value or a fixed amount.
Is GST paid on stamp duties?
Stamp duty and registration fees are excluded from GST. Stamp duty is a government-imposed charge that varies by state. This cannot be considered a product or service. As a result, stamp duty and registration fees are excluded from GST.
Prior to the establishment of the GST on real estate, house purchase taxes existed.
Before the GST, a single tax, was formed in 2017, buildings were subject to a variety of state and national taxes at various stages of the development cycle. While these levies increased the cost of development for builders, they could not offset the production liability. Prior to the GST, real estate developers had to pay the following taxes:
Value Added Tax (VAT)
Central Excise
Entry Tax
LBT
Octroi
Service tax, etc.
The customer was then charged for the fees incurred by the builders in paying these taxes. Furthermore, the complexities of the rate applicability of the various taxes enabled developers to manipulate data in order to charge buyers more. It used to be difficult for the average buyer to calculate the VAT, Central Excise, Entry Tax, LBT, Octroi, and service tax rates that applied to property construction.
Changes in the GST on real estate
The GST unified various indirect taxes to give taxpayers a more consistent structure. The category under which GST is imposed on real estate has changed multiple times since its introduction.
Central and state taxes that GST subsumed
Central taxes
Excise Duty
Customs Duty
Special Additional Duty of Customs
Service Tax
Central Sales Tax
Central surcharge and cess on supply of goods and services
State taxes
State Value Added Tax
Entertainment Tax
Luxury Tax
State Excise Duty
State surcharge and cess on supply of goods and services
Taxes on advertisement
Purchase tax
Taxes on lotteries, gambling, and betting
GST rate on real estate 2025
When Indian homebuyers purchase under-construction homes such as flats, apartments, bungalows, and developable land, they are subject to GST. The GST rate on real estate is 1% for affordable properties. Other properties are subject to the 5% GST on real estate.
GST on flat purchase in 2025
| Property type | GST on real estate till March 2019 | GST on real estate rate from April 2019 |
| Affordable housing* | 8% with input tax credit (ITC) | 1% without ITC |
| Non-affordable housing | 12% with ITC | 5% without ITC |
GST on Real Estate: Government Housing Schemes
The government has declared that the GST rate for affordable housing will be 1% under the new regime. Housing programs include the Jawaharlal Nehru National Urban Renewal Mission, the Rajiv Awas Yojana, the Pradhan Mantri Awas Yojana, and state-level housing schemes.
GST calculation on affordable property
Here’s how to calculate GST on flat purchases in the affordable housing segment before and after the rate modification on April 1, 2019.
| Affordable housing | GST on affordable housing before April 1, 2019 | GST on affordable housing after April 1, 2019 |
| Property cost per sq ft | Rs 3,500 | Rs 3,500 |
| GST rate on flat purchase | 8% | 1% |
| GST | Rs 280 | Rs 35 |
| ITC benefit for material cost of Rs 1,500 at 18% | Rs 270 | Not applicable |
| Total | Rs 3,510 | Rs 3,553 |
What is the effect of GST on luxury properties?
Buyers of luxury homes will save more money due to the increased GST rates than they would have previously. Here’s how to calculate GST on a flat purchase in the premium class.
| Luxury housing | Before April 1, 2019 | After April 1, 2019 |
| Property cost per sq ft | Rs 7,000 | Rs 7,000 |
| GST rate on flat purchase | 12% | 5% |
| GST | Rs 840 | Rs 350 |
| ITC benefit for material cost of Rs 13,000 at an average of 15% | Rs 126 | Not applicable |
| Total | Rs 7,714 | Rs 7,350 |
What is the GST rate for constructing commercial units (shops, godowns, offices, etc.) in a real estate development?
| Description | Effective rate of GST (after deducting land value) |
| Construction of commercial units in a Residential Real Estate Project (RREP), as defined in issue no. 6 below, that commences on or after April 1, 2019, or in a continuing project for which the promoter has opted for updated rates commencing April 1, 2019. | 5% without ITC on total consideration. |
| Construction of commercial units in a Real Estate Project (REP) other than a residential real estate project (RREP) or in an ongoing project for which the promoter has chosen outdated rates | 12% without ITC on total consideration. |
GST on additional expenses for commercial and residential buildings.
Both commercial and residential real estate are subject to an 18% GST on other expenses that are categorized as real estate-related services. These fees include:
Brokerage
Legal consultation
Parking
Electric meter installation
Gas pipeline meter installation
Water connection charges
Society maintenance
Water connection
External development charges
Internal development charges
Home inspection fees
Home insurance fees
Home loan processing fees
Closing costs
GST on construction services
On October 3, 2024, the Supreme Court ruled that real estate firms are eligible to claim the Input Tax Credit (ITC) on construction expenditures for commercial buildings that are leased or rented out.
Although the GST regime does not directly apply to real estate in India, the new system does impose taxes on a number of related industries and services. Under India’s GST scheme, connected construction-related activities are subject to the following tax rates:
| Under-construction home bought under the PMAY Credit-Linked Subsidy Scheme (CLSS) | 8% |
| Under-construction home bought without the subsidy | 12% |
| Works contract for affordable housing | 12% |
GST rate on building materials
Since all materials used in development projects are subject to the Goods and Services Tax (GST), real estate in India is covered by GST through construction contracts, building projects, and constitutional work. The Indian construction industry, which continues to draw high tax rates through a combination of levies placed on the acquisition of various building construction supplies, is, in essence, included under the new regime.
What does the GST’s input tax credit (ITC) mean?
The ITC plan of the GST law sets it apart from the previous tax structure in India. Over the course of a housing project, a real estate developer pays taxes on the goods and services they purchase multiple times. When the builder paid his output tax under the GST regime, he would obtain an input tax credit.
On his finished product, a developer is required to pay a tax of Rs 25,000. In the past, the builder has paid Rs 21,000 in input tax for items like paint, cement, and steel. After subtracting the input tax credit, he would only be required to pay Rs 4,000 in output tax in this scenario.
GST on maintenance charges
If a flat owner pays their housing society a minimum maintenance fee of Rs 7,500, they are required to pay 18% GST on residential property. Residents’ welfare associations (RWAs) or housing societies that collect Rs 7,500 per flat each month are additionally required to pay 18% tax on the total money collected. However, housing societies that generate less than Rs 20 lakhs in revenue annually are not required to pay GST. Both requirements must be met for the GST to be applicable: each member must pay a maintenance fee of at least Rs 7,500 per month, and the RWA’s yearly turnover must exceed Rs 20 lakh.
Additionally, the government has made it clear that if the fees are above Rs 7,500 per month per member, the full sum is taxable. For instance, if each member pays Rs 9,000 a month in maintenance fees, the 18% GST on flats will be paid on the full Rs 9,000 rather than Rs 1,500 (Rs 9,000-Rs 7,500). Also, owners with many flats in the same housing society will be taxed for each unit separately.
In contrast, RWAs are eligible to get an ITC on the taxes they spend on products (such as taps, pipes, and other hardware and sanitary fixtures), input services (such as maintenance and repair), and capital goods (such as generators, water pumps, and lawn furniture).
GST on rent
Questions about GST are mentioned below.
At what point does the tenant have to pay GST?
When renting a residential unit, GST-registered tenants must pay 18% tax on the rent. On July 13, 2022, the GST Council declared a change in this area. Individual service providers that make more than Rs 20 lakh annually and businesses that earn more than Rs 40 lakh annually are both subject to the new law, which requires GST registration for both parties.
At what point does the landlord have to pay GST?
Under the GST structure, renting out residential real estate for commercial purposes is considered a form of service supply. If the annual rent for residential real estate exceeds Rs 20 lakh, the landlord is required to pay an 18% GST rent. In this instance, in order to pay GST on their rental revenue, landlords must register. Commercial real estate rentals are subject to an 18% GST.
GST on home loan
Although the borrower’s home loan repayment is exempt from GST, financial institutions offer a number of “services” related to the home loan procedure. GST is applicable because these are services. The bank will therefore charge GST for processing, technical valuation, and legal expenses if you apply for a home loan.
GST on the initial maintenance deposit that developers and builders pay.
The Gujarat bench of the Authority for Advance Rulings (AAR) has ruled that the GST is applicable to the one-time maintenance deposit that builders collect from buyers of real estate. The authority claims that this price is non-refundable because it is categorised as a service offering. But according to the AAR, GST would be subtracted from the maintenance payment when it is used for upcoming repairs.
Keep in mind that the majority of real estate developers require a one-time maintenance payment from prospective homeowners prior to the establishment of cooperative housing societies or residents’ welfare associations, which assume maintenance duties from the builder. Following its creation, the RWA and CHS are now exclusively in charge of maintenance tasks and are free to develop their own set of guidelines for determining maintenance costs. The builder would lose the ability to influence the situation.
The size of the property determines the specific duty of homebuyers; they are required to pay a specified amount per square foot. The entire sum of money received from clients as a one-time maintenance fee is then deposited into a common fund and utilised as required to achieve the desired goals.
Following collection, developers have a custom of immediately deducting 18% GST and depositing the remaining amount into the common fund. After the AAR ruling, developers will be required to provide the full amount without deducting GST.
It should be mentioned that builders were exempt from paying service tax on these maintenance deposits until the GST regime was put into effect in 2017.
The AAR’s decision permits RWAs and CHSs to collect GST from society members when it’s time to use it, as the builder would have been the one to charge this obligation initially.
GST on developable land
Plots are only considered developable if the owner has secured all required permits from municipal and local authorities to conduct future development on the parcel of property. In order to support future development, the owner must also build the fundamental infrastructure. The land parcel would be considered developable land if any or all of these operations had been carried out on it.
Demarcation of plot
Ground leveling
Boundary wall construction
Road construction
Construction of overhead tanks
Laying work of water pipelines
Laying work of underground sewerage lines
Setting up of water harvesting facility
Setting up of sewage treatments plants
Development of landscaped gardens
Setting up of a drainage system
You will not be required to pay GST if you invest in developable plots. Plot sales are exempt from GST even if some basic infrastructure has been built, according to a circular released by the Central Board of Indirect Taxes and Customs (CBIC) on August 3, 2022. A similar decision was been passed by the Karnataka AAR.
Some state officials formerly held a different view. The Madhya Pradesh Appellate Authority of Advance Ruling (AAAR) declared in July 2022, for instance, that land sold after development operations would be liable to an 18% Goods and Services Tax. In 2021, a similar ruling was made by the Gujarat Authority of Advance Ruling.
Immovable property sales were exempt from value-added tax prior to the GST regime; as a result, only direct taxes, such as stamp duty and registration fees, were paid in these transactions.
GST on Plot
Any little construction on the property is subject to GST, even though plot sales are likewise excluded. One-third of the plot’s value is deducted when it is sold, and the remaining two-thirds of the land’s value is subject to GST.
Impact of GST on registration fees and stamp duty
The government hasn’t done anything to remove property registration and stamp duty fees, despite repeated calls to do so since the GST regime went into effect. Consequently, in India, property transfers are subject to registration costs and stamp duty. The registration fee is either 1% of the property value or a fixed amount, while states impose stamp duty in the range of 5%–10%.
GST reimbursement for cancelled flat purchases
In order to enable purchasers to obtain a GST refund in the event that they decide to cancel a property purchase for which they have already paid the tax, changes to the GST regulations are probably going to be implemented. Under the new tax framework, unregistered entities—like homeowners—cannot now receive GST refunds. At the 48th GST Council meeting, which took place on December 17, 2022, it was proposed that the CGST Rules, 2017 be revised and that a circular be issued to govern the process for unregistered consumers to request a refund in these situations.
Myths about GST on real estate
Only under-construction apartments are subject to GST; ready-to-move-in apartments are not.
Emphasizing that the real estate industry is not covered by the GST is crucial. Under “work contracts,” a property building’s tax rate is determined. The developer is not allowed to charge GST on the sale of ready-to-move-in homes for this very reason. After a property has been finished and granted an occupancy certificate, it is deemed ready for occupancy and is no longer subject to the terms of the work contract. In short, properties that are still under construction and have not yet acquired their OCs would be subject to the GST. Not to mention that when purchasing ready-to-move-in properties under the previous administration, buyers had to pay service tax.
Nevertheless, the developer/owner would eventually include this expense in the total cost of the property because he paid GST at the time of acquisition. This effectively means that even if ready-to-move-in properties are exempt from GST, the buyer still pays it in the end.
GST is not applicable on land transactions
Since no goods or services are exchanged, the GST on building services does not apply to land sales. For taxable real estate transactions, GST provides a standard abatement of 33% of the overall contract value since land costs play a significant role in setting property prices.
How is GST calculated on real estate for flats that are still under construction?
Let’s say a builder sells a buyer an under-construction property for Rs 100. The GST on construction will only be applied to the remaining Rs 77 after Rs 33 has been subtracted from the land value in order to calculate the GST on building.
What is affordable housing under GST?
Housing units up to Rs 45 lakh are considered affordable housing under the government-established standard. To be eligible as affordable housing, the unit must, however, also meet specific measuring requirements. If a dwelling unit in a metropolitan city costs up to Rs 45 lakh and has a carpet area of up to 60 square meters, it is considered an affordable home. Metropolitan cities include Bengaluru, Chennai, Hyderabad, the Mumbai-Mumbai Metropolitan Region, Kolkata, and the Delhi-National Capital Region. A dwelling unit in any Indian city other than the ones listed above qualifies as an inexpensive home if it costs up to Rs 45 lakh and has a carpet area of up to 90 square meters.
How can I figure out my eligibility for affordable housing based on the Rs 45 lakh cap?
Charges like parking, development, common utilities, and desirable location are taken into account when calculating the Rs 45 lakh cap. When assessing eligibility, you are exempt from paying stamp duty, maintenance fees, maintenance deposits, common infrastructure maintenance, and other considerations.
GST calculation on affordable property
Here’s how to calculate GST on affordable housing flat purchases both before and after the April 1, 2019, rate change.
| Affordable housing | GST on affordable housing before April 1, 2019 | GST on affordable housing after April 1, 2019 |
| Property cost per sqft | Rs 3,500 | Rs 3,500 |
| GST rate on flat purchase | 8% | 1% |
| GST | Rs 280 | Rs 35 |
| ITC benefit for material cost of Rs 1,500 at 18% | Rs 270 | Not applicable |
| Total | Rs 3,510 | Rs 3,553 |
How did GST impact luxury property?
The higher GST rates will result in greater savings for luxury home buyers than they would have in the past. Here’s how to figure the GST on a premium sector flat purchase:
| Luxury housing | Before April 1, 2019 | After April 1, 2019 |
| Property cost per sq ft | Rs 7,000 | Rs 7,000 |
| GST rate on flat purchase | 12% | 5% |
| GST | Rs 840 | Rs 350 |
| ITC benefit for material cost of Rs 13,000 at an average of 15% | Rs 126 | Not applicable |
| Total | Rs 7,714 | Rs 7,350 |
How did GST impact the real estate sector?
The typical person now finds it easier to invest in under-construction properties after the introduction of the GST in 2017, especially since the old tax regime ended and a number of taxes were removed. When purchasing a home, purchasers can learn about the various taxes they will be required to pay thanks to a unified tax system.
By rationalizing GST rates, the government has also significantly increased investment in reasonably priced real estate.
In terms of helping developers, the GST policy has also been quite advantageous. Developers had to pay a number of taxes under the previous administration, such as VAT, Central Excise, Entry Tax, LBT, Octroi, Service Tax, and others, for which there were no easy ways to claim credits against the production tax burden. However, a study by consulting firm PwC India found that the GST regime minimizes the inefficiencies caused by the cascading effect of taxes by allowing ITC eligibility on construction and other services purchased.
GST is applied if rent or maintenance fees are increased by electricity costs.
The Goods and Services Tax (GST) system classifies electricity charges as a composite supply when they are paired with rent or maintenance fees collected by mall owners, airport operators, or real estate developers. The Central Board of Indirect Taxes and Customs (CBIC) subsequently stated that 18% GST would apply to such a service. According to the statement, the supplies will constitute a composite supply even if electricity is billed separately. Tenants of commercial buildings will have to pay 18% GST on power rates if the service is included in the rental or maintenance of the property, according to the CBIC’s most recent explanation. Since landlords would factor in a higher rate while supplying the supply, tax experts predict that this would result in higher rental charges for tenants.
Homebuyer enquiries about real estate GST Rate
Is the builder or the buyer responsible for paying the GST?
What are the GST rates for residential flat construction?
| Description | Effective rate of GST (after deducting land value) |
| Construction of affordable residential apartments | 1% without ITC on total consideration. |
| Construction of residential apartments other than affordable residential apartments | 5% without ITC on total consideration. |
Does a promoter or builder have the option to use the ITC to pay taxes at the previous rates of 8% and 12%?
Yes, but only if the project is still active. In such a circumstance, the promoter or builder can pay GST at the previous effective rate of 8% or 12% with ITC. To keep the old prices, the promoter/builder must select a one-time choice on the required paperwork and manually submit it to the jurisdictional commissioner before May 10, 2019. The new GST rate of 5% or 1% will be applied, along with all of the new scheme’s regulations, including transitional measures, if a promoter or builder fails to exercise the option in the proper way. It will be presumed that he has selected new rates for ongoing projects. For projects beginning on or after April 1, 2019, this option is not accessible. The new GST rate of 1% or 5% without ITC will apply to residential unit construction in projects starting on or after April 1, 2019.
Can a constructor collect GST from their customers?
Yes, builders may collect GST from customers.
What is the GST rate on development rights transfers, FSI transactions, and long-term land leases?
The exemption applies to the supply of TDR or FSI, as well as long-term leases of land used for the construction of residential flats in a project that are booked before the issuing of a completion certificate or first possession.
Whether the residential apartments for which such TDR or FSI is used are in the affordable residential apartment category or in another category, the amount of tax will be limited to 1% or 5% of the apartment’s value. The supply of TDR or FSI or long-term lease of land on such value that is proportionate to the construction of residential apartments that remain unbooked on the date of issue of completion certificate or first occupation would attract GST at the rate of 18%.
An 18% GST will be applied to TDR, FSI, or long-term leases of land used for the construction of commercial apartments. The aforementioned is applicable to the long-term lease of land used in new developments with a new rate of 1% or 5%, as well as the provision of TDR or FSI.
Who must pay the GST on the Floor Space Index and TDR?
On a reverse charge basis, the builder must pay GST on TDR or floor space index supplied on or after April 1, 2019.
My home is now under construction, and the carpet area is 150 square meters. I am a PMAY CLSS beneficiary. Does the new 1% rate apply to me as well?
As long as the developer-promoter you reserved the property with hasn’t used the option to pay tax on apartment buildings at the former rate of 8%, you are qualified for the new GST rate of 1%.
As of right now, I have paid 12% tax on installments made prior to April 1, 2019. The new 1% or 5% interest rate is something I would like to take advantage of. Who has the choice of paying taxes at the old or new rate—the buyer or the builder?
The buyer is unable to select between paying taxes at the old or new rates. By May 10th, 2019, the builder must choose to pay the existing 12% tax rate on apartment development. Depending on whether the flat is affordable or not, the effective GST rate that will apply to all payments due to the builder on or after April 1, 2019, in accordance with the contract, will be either 1% or 5% if the builder does not exercise his option to continue paying tax at the old rate by the deadline.
Conclusion
Understanding the complexity of GST on flat purchases is critical for every home buyer. GST is an important consideration in financial planning, from determining appropriate GST rates to understanding its impact on total costs and maintenance charges. Staying aware about these details allows purchasers to make informed selections, preventing their ideal home from becoming a financial burden.
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