GST on Real Estate Developers | Builders & Agents

The real estate sector in India has undergone significant changes with the introduction of the Goods and Services Tax (GST). Prior to GST, the real estate industry was subject to multiple indirect taxes like VAT, service tax, and excise duty, making the tax structure complex and non-transparent. With the implementation of GST, the taxation system has become more streamlined, aiming to bring uniformity and reduce the cascading effect of taxes. However, the GST framework has specific rules and rates applicable to real estate developers, builders, and property agents, making it essential for stakeholders to understand the implications. In this detailed guide by Team TAXAJ, we will explore GST rates, Input Tax Credit (ITC) rules, and compliance requirements for the real estate industry.

About This Plan

Everything you need to know as a Real Estate Agent or Builder

Timeline

It usually takes 3 to 5 working days.

Buy Now

Services Covered

Who Should Buy

How It's Done

Documents Required

Services Covered

Session with TAXAJ Expert
Understanding the requirements and needs
Filing of Returns and Compliances

Who Should Buy

Any business willing to do the mentioned business

How It's Done

Purchase of Plan
Expert Assigned
Upload documents on vault
Filing & Compliance as per the need

Documents Required

Name, Contact Number and Email Id of Stakeholder.
Self Attested PAN, Aadhar & Passport size photo of Stakeholder.
Specimen Signatures of Stakeholder.
Latest Electricity Bill/Landline Bill of Registered Office.
NOC from owner of registered office. (If Owned)
Rent Agreement from Landlord. (If Rented/Leased)
Brief description of main business activities of the proposed Company.
Cancelled Cheque in business name (After GST Approval)

Meaning of Real Estate

Real Estate means Property in form of land in isolation or Land and Building taken together.

Real Estate Project means the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartment, as the case may be, for the purpose of selling all or some of the said apartments or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto.

Following are some of the activities which are treated as supply for charging GST in Real Estate –

Renting of residential property
Construction of a residential complex, building including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate by the competent authority or after its first occupation
Works Contract i.e. a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any residential property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract

GST Applicability in the Real Estate Sector

The applicability of GST in the real estate sector varies based on the type of property and the stage of construction:

Under-Construction Properties: GST is applicable on the sale of under-construction properties. The buyer must pay GST on the value of the property, excluding the land component.
Ready-to-Move-In Properties: No GST is applicable on the sale of completed properties (ready-to-move-in), where the Completion Certificate (CC) or Occupancy Certificate (OC) has been issued.
Land and Plots: Sale of land and plots (other than those sold as part of a construction project) is exempt from GST.

GST Applicability on Construction of Apartments in a Real Estate Project

The GST rates for real estate projects differ based on the type of project and whether the developer opts for the new GST rate scheme (without ITC) or the old GST rate scheme (with ITC).

Type of Project	GST Rate	Input Tax Credit (ITC)	Details
Affordable Housing Projects	1%	No ITC	Residential properties up to ₹45 lakh with specific area criteria.
Non-Affordable Housing Projects	5%	No ITC	Residential properties beyond the affordable housing criteria.
Commercial Real Estate Projects	12%	With ITC	Applicable to offices, shops, and other commercial units.
Real Estate Services (Brokerage)	18%	With ITC	GST on brokerage services by property agents and consultants.

Meaning of Affordable Residential Apartment

Affordable residential apartment is a residential apartment in a project which

commences on or after 01-04-2019, or
in an ongoing project in respect of which the promoter has opted for new rate of 1% (effective from 01-04-2019)
having carpet area – upto 60 square meter in metropolitan cities and upto 90 square meter in cities or towns other than metropolitan cities
the gross amount charged for which, by the builder is not more than forty-five lakhs rupees

Notes:

a. For the purpose of determining the threshold of the gross amount of Rs. 45 lakhs, all the charges or amounts charged by the developer from the buyer shall form part of the gross amount charged. However, the value shall not include –

Stamp duty payable to the statutory authority
Maintenance charges/ deposits for maintenance of apartment/ common infrastructure

b. Value of Land – 1/3rd of the total contract value shall be considered to be the value of land and will be exempt from GST.

c. For the purpose of availing above GST rates, atleast 80% of the total value of inputs and input services should be purchased from registered suppliers.

Meaning of Residential Real Estate Project (RREP)

Residential Real Estate Project means a real estate project which

commences on or after 01-04-2019, or
in an ongoing project in respect of which the promoter has opted for new rate of 1% (effective from 01-04-2019)
in which commercial apartments is not more than 15 percent of the total carpet area of all the apartments in the project

Input Tax Credit (ITC) for Real Estate Developers

The Input Tax Credit (ITC) is a key feature of the GST system, allowing developers to claim a credit for the tax paid on inputs used for the construction project. However, the ITC rules have been revised under the new GST scheme:

Old Scheme (With ITC): Developers opting for the 12% GST rate could claim ITC on inputs like cement, steel, and other construction materials.
New Scheme (Without ITC): Under the new GST rates of 1% and 5% for affordable and non-affordable housing respectively, developers cannot claim ITC. This move aims to simplify compliance and prevent misuse of ITC claims.

Impact of ITC Restrictions:

The removal of ITC under the new scheme has resulted in increased project costs for developers. However, it has also simplified the tax filing process, reducing complexities for builders and customers alike.

Applicability of GST on Works Contract and Sub-Contract

Real estate projects often involve works contract services, which include construction, renovation, and repair services provided by contractors and subcontractors. These services attract 18% GST, and the contractor can claim ITC on inputs used in providing these services.

Applicability of GST on Flats/Properties

GST is not leviable on sale to ready-to-move-in homes. On completion of its construction and after receiving the occupancy certificate, a property is categorised as to ready-to-move-in. Such kind of property does not come under the ambit of GST. GST would be applicable only of the sale of under-construction properties that have yet to receive the occupancy certificate.

When an arrangement is made with the builder for construction of Floors/Flats, (other than approved housing projects) and where the some of the floors/flats are given to the builder as consideration for the construction then GST shall not be applicable on undivided share of land but GST shall be taxable at the rate of 18% on the transfer of the floors/flats by the builder to the land owner.

Applicability of GST on Rental Income

No GST is levied on rental income as long as residential property is rented out. However, 18% GST is applicable if such property is on rent for business purposes or rent amount per year exceeds Rs. 20 lakhs. 18% GST is applicable on renting commercial properties.

Non-Applicability of GST on Sale of Land

As per Schedule III of the CGST Act sale of land shall be treated neither as a supply of goods nor a supply of services. Since, sale of land is not a supply under GST and hence falls outside its purview.

Applicability of GST on Sale of Plot

No GST will be levied on sale of Plot. However, a plot with any sort construction on it would attract GST.

GST Compliance for Real Estate Developers and Builders

Real estate developers and builders must comply with various GST requirements to ensure smooth operations:

GST Registration: Mandatory for developers and builders whose annual turnover exceeds the threshold limit (₹20 lakh for most states).
Invoicing and Tax Collection: Proper tax invoices must be issued to buyers, specifying the applicable GST rate and amount. Builders should ensure accurate documentation, especially for under-construction properties.
Filing GST Returns: Regular filing of GST returns (GSTR-1, GSTR-3B, and GSTR-9) is mandatory. Developers must report sales, input credits, and tax payments accurately.
Reversal of ITC: Developers opting for the new GST rate without ITC must reverse any ITC claimed on inputs for ongoing projects, based on the proportion of unsold inventory.

GST for Real Estate Agents and Consultants

Real estate agents and property consultants play a crucial role in the sector by facilitating property sales and transactions. GST implications for agents include:

GST Rate: Brokerage and commission services provided by real estate agents are subject to 18% GST.
GST Registration: Agents must obtain GST registration if their aggregate turnover exceeds ₹20 lakh.
Invoicing and Compliance: Agents must issue tax invoices and file regular GST returns, reporting their earnings and GST collections.

Transitional Provisions for Ongoing Projects

For ongoing projects that commenced before the implementation of the new GST rates, developers have the option to choose between the old GST scheme (with ITC) and the new GST scheme (without ITC). This choice must be exercised by filing a declaration, and the decision is irrevocable.

Benefits of GST in Real Estate

Simplified Tax Structure: GST has replaced multiple indirect taxes, bringing transparency and reducing the tax burden on homebuyers.

Reduced Cascading Effect: With the availability of ITC (under the old scheme), the cascading effect of taxes is minimized, lowering the overall cost of construction.

Standardized Tax Rate: Uniform GST rates have eliminated discrepancies and simplified tax compliance for developers.

Conclusion

The GST regime has brought significant changes to the real estate sector, impacting developers, builders, and property agents alike. While the removal of ITC under the new scheme has simplified compliance, it has also increased the effective cost for developers. For buyers, the clarity in GST rates has brought transparency, reducing hidden costs in property transactions.

It is crucial for stakeholders in the real estate industry to stay updated with the latest GST notifications and adhere to compliance requirements. For expert guidance on GST registration, ITC claims, and filing returns, contact Team TAXAJ. Our team of professionals is here to help you navigate the complexities of GST, ensuring seamless compliance and optimized tax benefits.