GST on real estate transactions is one of the most technically complex and litigation-prone areas of Goods and Services Tax compliance in India. The rates applicable to residential and commercial properties, the treatment of joint development agreements (JDAs), the restrictions on Input Tax Credit (ITC) in the residential segment, and the reverse charge obligations on Transfer of Development Rights (TDR) have all generated significant advisory and dispute work since the revised real estate GST regime was introduced in April 2019. Understanding the current GST real estate framework is essential for developers, landowners, buyers, and their advisers.
Under-construction residential apartments in a Residential Real Estate Project (RREP) that do not qualify as affordable housing attract GST at 5% (without Input Tax Credit) on the total consideration for bookings made before the issuance of the occupancy certificate or completion certificate.
The absence of ITC is the critical feature of the post-April 2019 residential rate structure. Before April 2019, developers could claim ITC on construction materials and services and effectively pass the benefit to buyers through lower effective prices. Post-April 2019, developers pay GST on inputs but cannot set it off against output tax-increasing effective construction costs.
Affordable Housing:
For affordable housing, the GST rate is 1% (without ITC). Affordable housing is defined by CBIC Notifications as a residential apartment satisfying both conditions:
- Carpet area does not exceed 60 square metres in metropolitan cities (Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai) or 90 square metres in other cities and towns; AND
- The value does not exceed INR 45 lakh per unit
Both conditions must be satisfied simultaneously. A flat with a carpet area of 55 sq m but a value of INR 60 lakh is not affordable housing.
Completed Properties: No GST
Completed residential and commercial properties (i.e., properties for which an occupancy certificate or completion certificate has been issued) are outside the scope of GST. The transfer of a completed property is treated as a transfer of immovable property and is outside GST (it falls in the excluded category under Schedule III of the CGST Act, 2017). Stamp duty and registration charges apply instead.
This creates an important distinction: a buyer who books an under-construction flat pays GST on the purchase consideration; a buyer who purchases from the secondary market after completion pays stamp duty but no GST. This is a structurally significant price difference that affects buyer decisions and developer sales strategies.
GST on Commercial Under-Construction Property
Under-construction commercial properties (office space, retail, commercial complexes, industrial buildings) attract GST at 12% (with ITC). Unlike residential projects, ITC is available on commercial construction. Developers can claim GST paid on input materials and construction services and offset it against the 12% GST charged to commercial buyers.
Completed commercial properties transferred after the occupancy certificate are outside GST (stamp duty applies); rental income from commercial property attracts 18% GST (discussed below).
Transfer of Development Rights (TDR) in Joint Development Agreements
The GST treatment of TDR in JDA structures is one of the most complex areas in the real estate GST framework and a common source of developer liability.
What is TDR in a JDA? In a typical Joint Development Agreement, a landowner grants development rights to a developer. The landowner contributes the land; the developer builds and shares a portion of the constructed units (or their equivalent value) with the landowner. The “transfer of development rights” from the landowner to the developer is treated as a supply of service under GST.
Reverse Charge on TDR: Under CGST Notification No. 4/2018 (as amended), the developer (not the landowner) is required to pay GST on TDR received from the landowner under the Reverse Charge Mechanism (RCM). The rate is 18% on the value of the TDR. The value is determined as the notional value equivalent to the consideration (which may be in the form of constructed area to be given back to the landowner).
Proportionate liability: GST on TDR applies proportionately to the area of units sold to third-party buyers before the occupancy certificate. For units unsold at the time of completion, no GST is payable on TDR (as the supply of completed units falls outside GST).
Developer’s liability on construction services to landowner: The developer is also deemed to supply construction services to the landowner-equivalent to building the landowner’s share of the constructed units. This notional supply attracts GST at 5% (residential) or 12% (commercial), payable on the value of construction at the time of first occupancy/completion certificate.
ITC Restrictions on Residential Projects: Post-April 2019
The April 2019 scheme removed ITC eligibility for developers of residential real estate projects. Specifically:
- Residential projects: No ITC is available on goods and services procured for construction of residential apartments. GST paid on cement, steel, labour contracts, architectural services, and all other inputs for residential construction is a cost that cannot be recovered through ITC.
- Commercial projects: Full ITC is available on inputs used for construction of commercial property intended for taxable supply (rental income).
- Mixed-use projects: Where a project has both residential and commercial components, ITC must be proportionally allocated, with the residential portion’s ITC reversed.
This ITC restriction is a significant compliance issue. Developers frequently err in claiming ITC on common facilities serving both residential and commercial floors, or on materials procured before the project character was defined.
GST on Rentals
Commercial Rentals: Rental income from commercial properties (office space, retail, warehousing) attracts GST at 18% where the registered landowner or licensor is a GST-registered person above the threshold. The tenant/licensee pays the rent plus GST and can claim ITC on the GST component (if the commercial property is used for business purposes).
Residential Rentals, Individual Tenants: Rental of residential property by an unregistered individual to an individual tenant for personal use is exempt from GST.
Residential Rentals, Companies: Since July 18, 2022, when a registered person (company or business) takes a residential property on rent for the accommodation of its employees, GST at 18% is payable under Reverse Charge Mechanism by the registered tenant. This amendment reversed the earlier blanket exemption for residential rentals and caught many companies by surprise.
Common GST Compliance Errors in Real Estate
- Claiming ITC on residential project inputs post-April 2019: The most widespread error. Many developers continue to claim ITC on materials and services for residential construction, either through oversight or under the erroneous belief that partial eligibility exists.
- Incorrect HSN codes: Residential under-construction services (HSN 9954) and commercial construction services have different sub-HSNs. Using incorrect HSN codes in invoices and GSTR-1 creates reconciliation issues and may attract scrutiny.
- Not paying GST on TDR received in JDAs: Developers sometimes overlook the reverse charge obligation on TDR or miscalculate the taxable value.
- Failing to apply GST on long-term lease premiums: Long-term leases (exceeding 30 years) of commercial property may be classified as supply of goods (transfer of interest in property) attracting GST; short-term leases are services.
- Not accounting for GST on cancellation refunds: When an under-construction booking is cancelled and consideration is refunded, the input tax credit chain must be reversed correctly.
Key Takeaways
- Under-construction residential apartments attract 5% GST (1% for affordable housing); completed properties (post-occupancy certificate) fall outside GST and attract only stamp duty.
- ITC on residential real estate construction is not available from April 2019 onwards; claiming it is a common and costly compliance error.
- Transfer of Development Rights (TDR) in JDAs is subject to 18% GST under reverse charge-payable by the developer on receipt of development rights from the landowner.
This article is for informational purposes only and does not constitute legal advice. Readers should seek appropriate professional counsel for their specific circumstances.
META TITLE: GST on Real Estate India: Rates, ITC and JDA Compliance