GST on Real Estate: Affordable vs Luxury Homes

If you spend your weekdays advising developers, investors or home-buyers, you know that real estate is not just about bricks and location — it’s about tax engineering, cash flow and reputational risk. GST rules for property remain one of the trickiest corners of indirect tax. Even after multiple rounds of rationalisation, the core practical questions persist: when do you charge GST, what rate applies, who gets to claim input tax credit, and how does the tax treatment affect pricing and cash flow?

In 2025, the headline is deceptively simple: under-construction residential properties attract either a concessional 1% (affordable) or 5% (non-affordable) GST without the benefit of ITC, while ready-to-move properties are typically outside GST. Sounds neat, right? But as with most tax rules, the devil is in the details — definitions, valuation, contract drafting and accounting entries turn a simple percentage into a complex project for tax teams. This article walks you through the rules, the practical mechanics, worked examples, compliance traps and advice you can hand straight to your clients.

GST generally taxes the supply of services or goods. For real estate, the primary trigger arises when a developer supplies an under-construction residential unit or provides construction services. Conversely, the sale of a completed property, where the developer has obtained a completion certificate (or the property is a resale), falls outside the GST net — buyers pay stamp duty and registration charges but not GST.

Why this distinction? Think of GST as a tax on the value addition performed by the builder. Once construction is complete and the building is handed over, the “taxable service” element is considered exhausted. That’s why a ready-to-move flat is treated differently from the same floor-plan sold during the construction phase.

Under-construction transactions typically involve staged collections, advances, retention amounts and periodic certification — all of which make the timing of GST and compliance mechanics especially important.

One of the evergreen puzzles in real estate GST is the treatment of the land component. The good news: GST is not charged on the sale of land. The tax base for the concessional rate is usually the “construction value” or the value attributable to the supply of construction services, which excludes the value of land. However, when developers quote a single composite price, you must split that price between land and construction for GST calculation. That apportionment can become contentious in audits.

Common areas and amenities (lobbies, lifts, clubhouses) that are part of the common plan are typically considered part of the composite supply of the unit — so their value is included in the taxable base for GST on the under-construction sale, unless the transaction structure segregates them explicitly and legitimately.

From an advisory standpoint, always ask: is the agreement clear about the breakup? Is the method of apportionment reasonable and supportable with internal cost sheets? Ambiguity attracts scrutiny.

ITC is the heart of GST’s economic logic: tax paid on inputs should be set off against tax on outputs, avoiding cascading. Concessional real-estate slabs (1% and 5%) are explicitly “without ITC.” Why did policymakers choose this design? Two reasons. First, the real-estate supply chain is complex and historically prone to classification disputes; a low flat rate without ITC simplifies the compliance effort. Second, it avoids a situation where developers claim a large pool of ITC and then sell cheap units, shifting tax complexity to refunds and reversals.

For developers, this means the tax paid on cement, steel, services, and subcontractors is a cost that must be managed. Savvy promoters either absorb it in margins, pass it to buyers via pricing, or optimize procurement and vendor contracts to reduce the effective tax load. For tax professionals, the key task is documenting the rationale and calculation — clear cost apportionment, tax accounting policies and reconciliations are your evidence in case of challenge.

Commercial supplies are typically taxed under the regular GST regime with the ability to claim ITC. Office spaces, retail shops and commercial warehouses therefore follow a more standard input-output credit model. That difference creates real planning opportunities and pitfalls. Mixed-use developments — say a tower with retail podiums and residential floors — require careful apportionment and sometimes separate registrations for the development phases or components.

Developers must decide how to treat shared services, common areas, and amenities for GST and ITC purposes. Misallocations (for example, claiming ITC on inputs used for residential supplies that are under concessional rates) are common triggers of departmental notices. For tax advisors, robust internal allocation methodologies and transfer-pricing style documentation (cost pools, usage metrics) go a long way.

From drafting invoices to filing returns, real-estate GST compliance has many moving parts. Time of supply rules, whether GST is triggered on issuing an invoice or on receipt of advance, affects monthly filings and output liability. Many agreements include advance payments for allotment; these must be recorded and GST accounted for based on the applicable time of supply rule.

E-invoicing applies to certain turnover thresholds, and while property sales below a certain threshold might be exempt from e-invoicing, the interplay with procurement, subcontractor bills and vendor compliance requires attention. Retention money, performance security and earn-outs also cause complications — are they part of the taxable value or separate? Reverse charge obligations may apply for certain rented services or imports. These nuances mean that a checklist and a tight invoicing policy are indispensable.

Real estate GST disputes often revolve around classification: is a transaction a works contract, supply of goods or supply of services? Is the supply composite or mixed? How do you value the land component? These classification disputes determine applicable rates, eligibility for ITC and even the jurisdiction of adjudication.

Another frequent dispute area is the valuation for GST when freebies or add-ons are provided (club membership, furnishings) — should these be treated as part of the taxable value? Similarly, transfer of development rights (TDR), joint development agreements (JDA) and revenue-sharing models create complex valuation and supply questions. Tax authorities scrutinize such arrangements for disguised sales or indirect transfers.

For CA/CS professionals, proactively documenting commercial rationale, valuation methods and board approvals reduces litigation risk. Keep contemporaneous working papers; courts and tribunals value a clean paper trail.

A common practical headache is when a builder sells units under construction but obtains the completion certificate (OC) before certain payments are made or before particular tax periods close. Once an OC is issued and the property is “completed,” subsequent transfers generally do not attract GST. But what about advance collections taken earlier? How should adjustments be processed, and what if the invoice was raised earlier? These transition points require careful accounting entries and sometimes credit/adjustment notes.

If a buyer cancels a booking or if there’s a delayed completion, reversal rules and interest calculations under GST statutes may apply. Draft clear clauses in sale agreements to allocate the tax risk for such contingencies; it helps avoid disputes later.

From a client advisory perspective, clarity wins. Draft sale agreements that explicitly state the GST component, the breakup between land and construction, and who bears any future tax adjustments. Avoid ambiguous “all inclusive” pricing that fails to show separate land consideration; it makes audits and buyer disputes much more painful.

For pricing strategies, developers often choose to show the GST separately and explain that it applies only to the construction value. This transparency builds trust with buyers and reduces complaint resolution time. For tax professionals, recommend clauses that allow price revisions if statutory tax treatment changes, and include timelines for full payment and GST collection.

Developers with multiple projects can strategise: group affordable units in eligible projects to take advantage of the 1% rate, optimize procurement for projects under concessional regimes, or sequence project timelines to better manage cash flows. Investors should ask promoters about the project’s GST treatment before buying (especially if buying pre-launch or in stages) because GST differences materially affect net cost.

For promoters, assessing whether to opt for the concessional route or structure different offerings (e.g., service apartments vs residential inventory) depends on long-term margin calculations, market positioning and financing costs. Tax teams should create a modeled sensitivity analysis that tests different GST scenarios and their impact on unit pricing and profitability.

Before any sale closing, walk through a checklist: confirm the project’s eligibility for the concessional slab; ensure the contract separates land and construction; verify invoices reflect the correct rate; check whether ITC claims (if any in other segments) are properly apportioned; document all internal approvals; and retain evidence for procurement taxes paid. Ensure your accounts department and legal team reconcile the sale deed, invoices and OC dates. This reduces the probability of demand notices and strengthens your ability to respond swiftly if the department raises questions.

GST on real estate may seem like a two-line rule on paper — 1% for affordable, 5% for others, and nothing for ready-to-move flats — but the practical tax work is layered: apportionment, ITC implications, invoice mechanics, litigation hotspots and cash-flow management all matter. For CA, CS and tax professionals, the role is twofold: ensure compliance and translate tax mechanics into commercial advice. Document everything, be explicit in agreements, and create scripts for client conversations so buyers understand why GST affects final pricing. If you master these details, you’ll turn complicated tax talk into boardroom clarity and help your developer clients and homebuyer clients make better, faster decisions.

FAQs :

No. Resale or ready-to-move properties where construction is complete and a completion certificate is available are generally outside the scope of GST; buyers pay stamp duty and registration instead.

On face value 1% is lower than 5%, but remember that both concessions deny ITC to the developer. The net effect depends on how the developer manages input costs and pricing strategy.

Apportion the composite price into land and construction using a defensible methodology (cost sheets, comparable land sales, or stated breakup). Maintain supporting working papers — ambiguity invites scrutiny.

Developers can claim ITC for commercial supplies under the regular GST regime, but they must properly apportion shared inputs; incorrectly claimed ITC for concessional residential supplies is a common audit trigger.

Cancellation clauses in the sale agreement should address refunds, tax reversals and adjustments. The GST law allows for credit/debit notes and reversals, but documentation and timing matter.

E-invoicing thresholds apply by turnover and not by sector. While many property transactions fall below certain e-invoicing thresholds, developers with large turnovers may be required to adopt e-invoicing and must map their GST invoicing accordingly.

Freebies can form part of the taxable value if they are supplied for a consideration. Document whether they’re included in the price or separately charged; valuation issues are frequent audit points.

No. Stamp duty and registration are state levies and are not subject to GST.

Maintain project eligibility proofs, unit price schedules, clear land-construction breakup, procurement invoices, GST returns, and board approvals. A tight documentary trail is your best protection.