GST on Real Estate: Under-Construction vs Ready-to-Move Properties

Almost every property buyer asks the same question at some point in the negotiation: "why does the flat next door cost 5% less, even though it looks identical?" The answer is usually GST, and specifically, which side of the Completion Certificate date the purchase falls on. Getting this wrong, on either the buyer or the builder side, means either an unexpected cost or an under-collection that the builder has to absorb later.

The Line That Decides Everything: Completion Certificate

GST on real estate turns on a single event: issuance of the Completion Certificate (CC) by the competent authority, or first occupation of the property, whichever happens earlier.

• Before CC/first occupation: The builder is still supplying a construction service, not merely transferring completed property, so GST applies on the consideration received.
• After CC/first occupation: The transaction is treated as a sale of immovable property, which is outside the scope of GST altogether. Stamp duty and registration charges still apply, but no GST.

This is why a ready-to-move flat, where the full price is paid after the CC is issued, carries no GST, while an identical unit sold under construction, with instalments paid before the CC, is fully taxable on those pre-CC payments.

GST Rates on Under-Construction Residential Property

Both concessional rates (1% and 5%) were structured specifically on a no-ITC basis: builders paying these rates cannot claim input tax credit on the materials and services used in construction, and consequently cannot pass through any ITC benefit to buyers. This trade-off, a lower headline rate in exchange for foregoing ITC, was designed to keep the buyer-facing rate simple, even though it changes the builder's internal cost structure.

What Counts as Affordable Housing

To qualify for the 1% rate, a residential unit generally needs to satisfy both of the following conditions:

• Carpet area: Up to 60 square metres in the specified metropolitan cities, or up to 90 square metres in other cities and towns.
• Value: The gross value of the unit does not exceed the notified ceiling, currently Rs 45 lakh.

A unit that meets the area condition but exceeds the value cap, or vice versa, does not qualify as affordable housing and falls into the 5% category instead. Builders selling mixed developments (some affordable-eligible units, some not) need to track this classification unit by unit, since it directly affects the rate charged on each buyer's instalments.

Works Contract GST: A Separate Layer

The 1%/5% rates apply to the builder's sale of the flat to the end buyer. A separate GST layer applies to works contract services, meaning the construction services a contractor provides to the builder (or to a government body for public infrastructure). Works contract services are generally taxed at 12% with ITC for specified government and affordable-housing-linked projects, and 18% with ITC for other, non-government works contracts. Builders and contractors should not confuse this contractor-facing rate with the buyer-facing 1%/5% rate; they sit at different points in the supply chain and follow different ITC rules.

Land Is Never Taxed Under GST

The outright sale of land, with no construction attached, is treated as a transfer of immovable property and is entirely outside GST's scope. GST becomes relevant only when construction services are bundled into the transaction, as in a typical builder-buyer agreement for an apartment. In practice, agreements are structured to separate the land value from the construction value, and it is only the construction-linked portion of an under-construction sale that attracts GST.

What Buyers and Builders Should Check Before Signing

• Buyers: Confirm in writing whether the Completion Certificate has already been issued for the specific tower/unit, not just the project generally; large developments often get CC in phases. Also confirm whether the unit meets the affordable housing area and value caps, since that changes the rate from 5% to 1%.
• Builders: Classify each unit correctly at the time of booking and apply the rate consistently through the payment schedule; a unit that starts as affordable can lose eligibility if the sale value is later revised upward past the cap.
• Both parties: Keep the CC date, occupation certificate, and payment schedule clearly documented, since this evidence is what settles any later dispute over whether GST was correctly charged.