GST on under-construction properties: Comprehensive guide

While investing in an under-construction project, of the many important details that a home-buyer should be aware of the Goods and Services Taxes (GST) that is levied. This is a tax that the home-buyer has to pay and so he should be aware about the tax amount that he is required to pay. In this guide, we talk in detail about the GST in under-construction, the tax to be paid and how to manage your GST payments.

What is GST on under-construction properties?

Implemented in 2017, the Goods and Services Tax (GST) has simplified the tax structure in India. Many indirect taxes that people had to pay which differed from state to state made way to the GST that is imposed at both the centre and the state level. Home buyers should note that GST is not levied on ready-to-move- properties or properties which have received completion certificate.

Initially the government had imposed an 18% tax on under-construction flats, of which the homebuyers were to pay around 2/3rd of this i.e. around 12%. From this, around 6% was further reduced as this expected to be the value of the land that was being transferred. Following a court hearing that mentioned that land value should be deducted from the sale price of the property before the GST is calculated. As land is a major part of the property value, deducting that from GST leads to savings for the buyer.

Finally, after the 33rd amendment made by the GST Council, the GST for under-construction properties was reduced from 12% to 5%. However, this is without the ITC. Also, the government reduced the GST for affordable homes i.e. houses priced upto Rs 45 lakh to 1%.

Also read: GST 2025: Impact on real estate, tax rate, calculation, FAQs

How to calculate GST on under-construction properties?

The formula to calculate GST on under-construction properties is by deducing land value and applying GST rate.

GST= (Total value of property x 2/3) x GST rate/100

Where the Total value of property = The total price of the property

2/3 taxable value = This is the property value that is taxable as 1/3rd is the value of land that is exempted from GST calculation

GST Rate = 5% for non-affordable residential housing and 1% for affordable residential housing

Example for GST calculation for affordable housing

Property Value: Rs 42, 00, 000

GST Rate: 1%

Taxable value: Rs 42, 00, 000 × 2/3 = Rs 28, 00, 000

GST rate: Rs 28, 00,000 × 1/100 = Rs 28,000

Total GST amount: Rs 42,00,000 + Rs 28,000 = Rs 42,28,000

Example for GST calculation for normal residential housing

Property Value: Rs 75, 00, 000

GST Rate: 5%

Taxable value: Rs 75, 00, 000 × 2/3 = Rs 50, 00, 000

GST rate: Rs 50, 00,000 × 5/100 = Rs 2, 50,000

Total GST amount: Rs 75,00,000 + Rs 2, 50,000 = Rs 77,50,000

See also: GST on rent, rental income: Tax Rate on residential, commercial property 2025

Details about GST on under-construction property that home buyers should know

Before buying an under-construction property, a home-buyer should know the following points:

Know the GST that is applicable for under-construction properties

In the case of residential properties, one has to pay 5% GST on under-construction properties without the input tax credit (ITC) benefit. In the case of affordable housing (under-construction properties), one has to pay 1% GST without the ITC benefit.  Before paying the GST, identify if your property is a regular property or is registered under affordable housing and accordingly find out the GST to be paid. The GST levied on under-construction commercial properties is 12%.

Check the taxable value

GST is charged only on the project and not on the land value. So, before paying GST, find out if the land value has been separated by the builder and he is levying GST only on the property.

Check property project status

As mentioned above, home buyers need not pay GST on ready-to-move- properties or properties which have received completion certificate. So, check whether the project is really under-construction or the developer has got the completion certificate and then only proceed to pay the GST. Also, note that GST is different from the stamp duty and registration charges that have to be mandatorily paid irrespective of the type of property or construction status.

Negotiate with the builder on GST payment

While GST rate is fixed, you can negotiate with the builder to absorb the GST while buying the property. If the builder agrees, your overall GST liability will reduce, which will thus reduce the total amount that you will pay for the property.

Include GST while calculating property cost

GST is a major chunk of the cost of property you are buying. Thus, while budgeting the cost of the under-construction property you are exploring to invest, be mentally ready to pay the GST as well and arrange finances for that.

Financial implications of GST on under-construction properties for home-buyers

• GST is calculated after removing the land value and so is a major savings for the buyer.
• Although under-construction properties are risky investments, they are priced low because of the GST applied as opposed to the ready-to-move-in properties which are priced according to market demand.
• Simplified tax structure: There are many taxes that have been simplified and have been presented as GST.

Tips on timely payments of GST in an under-construction property

GST on an under-construction property has to be paid, each time the builder sends you the invoice depending on the construction that he has completed.

On-time payments

Ensure that you pay the GST on-time as any delay will lead to a heavy penalty on this tax.

Maintain the receipts

Once you have made the GST payment, ensure you get a proper receipt for it. Maintain all the documents safely because in case of any dispute you need to show these as proof.

Check if the builder is GST compliant

The builders have to be GST compliant and have to pay all the GST that he has collected from homebuyers to the government. In case the builder fails to do so, the impact will be on the home-buyer as well as he is the one who has to pay to the government.

Are there any exemptions made on GST for under-construction properties?

There are no exemptions as such on GST for under-construction properties except that the affordable housing segment is benefited by asking to pay only 1% as GST. However, this is without the ITC benefit.  Similarly, properties purchased under government housing schemes such as the Pradhan Mantri Awas Yojana etc. have some exemptions as the intent is to put less financial burden on the EWS and LIG category.

Documents required for filing GST of under-construction properties

• PAN card
• Bank statements
• Sale agreement: Sale agreement copy between the buyer and the developer as this is proof of the transaction.
• GST registration certificate: Both buyers and sellers should have GST registration certificates that are important during income tax return filings and claiming the Input Tax Credit (ITC).
• GST invoice given by developer: This should include property price, GST rate that is applicable and the total amount that has to be paid.
• Payment receipts: All property receipts including booking amount, instalments paid etc.

Housing.com POV

It is important to know details of GST on under-construction property before investing in an under-construction property. By getting to know the details including the calculation, the home-buyer can better plan finances for their property investment. Buyers should maintain all receipts regarding the property transaction and the GST payments done so that these can be used as proof in case of any discrepancy.