You booked a Rs 62 lakh flat in a RERA-registered project, and the second demand letter shows up with a new line called GST. Here's the short answer: under-construction residential property attracts GST at 1% for affordable housing and 5% for every other home, both without input tax credit, and both charged on two-thirds of the agreement value. A ready flat with a completion certificate attracts none.

That's the buyer's side. Builders and developers carry the harder half, because the rate on the invoice is the least of it. What they pay on cement, steel and contractors, which credit they can claim, and how the RERA account ties back to their GST returns decide whether a project's margin holds. The rates below follow the CGST Act, 2017 as notified. Check the latest CBIC notification before you sign or invoice anything.

What Is GST on Real Estate and Under-Construction Property?

GST on real estate applies when a unit is sold before the builder receives the completion certificate. The law treats that sale as a supply of construction service, not a transfer of land or building. The rates today:

1. Affordable residential: 1%, no input tax credit
2. Other residential: 5%, no input tax credit
3. Commercial shops and offices: 12%, input tax credit allowed
4. Property with a completion certificate: no GST, stamp duty applies

Affordable housing means a carpet area up to 60 sq m in metro cities, or 90 sq m elsewhere (Bhopal included), and a value up to Rs 45 lakh. Fail either test and 5% applies.

How Is GST Calculated on an Under-Construction Flat?

GST applies to two-thirds of the total consideration, because one-third is deemed to be land value. On the Rs 62 lakh flat at 5%, the taxable value is about Rs 41.33 lakh and the GST is about Rs 2.07 lakh, an effective 3.33%. A Rs 40 lakh affordable flat at 1% pays roughly Rs 26,700, or 0.67%. These figures are illustrative, and your agreement for sale controls the real split.

What GST Rate Applies to Builders and Developers?

Builders and developers charge buyers 5% or 1%, but they can't set off the GST paid on their own purchases against it. Cement, steel, tiles and contractor services carry GST up to 18%, so that tax becomes a project cost, usually folded into the base price.

There's a second catch. Notification 03/2019-Central Tax (Rate) expects promoters to buy at least 80% of inputs and input services, by value, from registered suppliers. Any shortfall is taxed at 18% under reverse charge. In project files this test tends to fail quietly, because sand, labour contractors and local material come from small unregistered vendors. Track the ratio monthly, not at year end, so the shortfall never lands as one cash outflow.

Get your GST registration sorted before the first booking amount is accepted. Advances are taxable on receipt, and a late registration turns into back-dated tax plus interest.

Can You Claim Input Tax Credit on Real Estate?

Not on residential units. Input tax credit (ITC) is the GST paid on purchases that you set off against GST payable on sales, and the 1% and 5% rates exist only without it. Commercial units at 12% do allow ITC, and a GST-registered buyer can claim it when the unit serves the business and the Section 16 conditions are met.

Mixed projects are where credit goes wrong. A tower with a retail podium and residential floors shares lifts, structure and lobbies. Credit must be apportioned, and anything attributable to residential flats stays out. Claiming it all against the 12% supply invites a notice.

The yearly match-up catches these slips, and our walkthrough of GSTR-9 and GSTR-9C shows how books, returns and credit get reconciled.

How Does RERA Compliance Connect With GST?

RERA compliance and GST are separate regimes that meet in the same ledger. RERA is the Real Estate (Regulation and Development) Act, 2016, and its Section 4(2)(l)(D) requires promoters to park 70% of buyer money in a designated project account. GST follows the same receipts.

Tax falls due as each installment comes due or each advance arrives, whichever is earlier. You report it in GSTR-1 and pay it through GSTR-3B, and the split between the two returns is laid out in our guide to GSTR-1 and GSTR-3B.

The mismatch that causes the most trouble is simple. The RERA quarterly update shows more collected than GSTR-1 does, because invoices went out late. Reconcile the account statement, the RERA update and both returns every quarter.

Most state rules also expect audited project accounts and a chartered accountant's certificate for withdrawals from the designated account. Independent audit services are worth paying for here, since the certificate carries the signer's name.

What Should You Do, Step by Step?

Here's the order that saves the most rework:

1. Ask for the completion certificate date. If it's already issued, GST shouldn't appear at all.
2. Test the carpet area and value against the affordable limits for your city category.
3. Read the demand letter for the taxable value, the one-third land deduction and the rate applied.
4. Developers: check the 80% ratio monthly and keep GST return filing in step with every RERA update.
5. Joint development, TDR and redevelopment deals follow separate rules, so get the structure reviewed before pricing.

Found a Gap in Your Project's GST Trail?

If a demand letter, a RERA update or a credit claim doesn't add up, it's cheaper to fix it now than after a notice. Chandwani & Company works with builders, buyers and investors on exactly this kind of reconciliation. A short call with your agreement and last two returns on the table is usually enough to show where the gap sits.

Frequently Asked Questions

Q1. Is GST charged on ready-to-move flats with a completion certificate?

A1. No. A flat sold after the completion certificate is a sale of immovable property, which sits outside GST. You'll pay stamp duty and registration charges instead. Check the certificate date against your agreement, because a booking made earlier can still attract GST on installments paid before the certificate.

Q2. Does the 1% rate apply if my flat costs more than Rs 45 lakh?

A2. No. Affordable housing needs both a carpet area within 60 sq m (metro) or 90 sq m (non-metro) and a value up to Rs 45 lakh. A flat that crosses either limit is taxed at 5%, even if the builder markets the project as affordable.

Q3. Can a business claim ITC on an under-construction office?

A3. Generally yes. Commercial units attract 12% GST with credit allowed, so a registered buyer can claim it if the office is used for business and the Section 16 conditions are met. Keep the tax invoice and confirm the builder files returns, since credit depends on supplier compliance.

Q4. Do I pay GST on the booking amount or only at possession?

A4. You pay it on the booking amount and on every installment. For construction services, tax arises when an advance is received or a payment falls due, not at possession. Ask for a tax invoice with each demand and keep them together, because they support any later claim or query.

Q5. Does GST apply to parking and maintenance charges?

A5. Parking sold as part of the flat follows the flat's rate. Maintenance charged by a resident welfare association is exempt up to Rs 7,500 per member per month. Above that, the whole amount becomes taxable at 18%, subject to the association's Rs 20 lakh turnover threshold.

Q6. How can a buyer check that a builder is charging the right GST?

A6. Search the builder's GSTIN on the GST portal using Search Taxpayer, then confirm the invoice shows the rate, the taxable value and the one-third land deduction. Compare the rate with your property's category. If the numbers don't match your agreement, ask for a written working before the next installment.