GST on Real Estate: Applicability and Key Rates

Applicability of GST in Real Estate

GST applies to services related to property construction but does not extend to the sale of completed or ready-to-move-in properties. These properties are classified as immovable assets and are, therefore, exempt from GST. However, GST is applicable in the following cases:

Under construction Properties
When a buyer purchases an under-construction property from a developer, GST is applicable because these properties are classified as services under GST law and are, therefore, taxable. The GST rate applicable to the property varies based on whether it qualifies as affordable housing or not.

Works Contracts
A works contract in real estate involves the provision of both goods and services for the construction of an immovable property. Under GST, such contracts are categorized as services and are subject to an 18% GST rate. This applies to contracts for construction, renovation, or repair work on properties.

Sale of Land and Completed Building
The sale of land and fully constructed buildings that have obtained a completion certificate is exempt from GST. These transactions are not considered services, but rather the sale of immovable property, which lies outside the purview of GST.

ITC (Input Tax Credit)
Builders and developers can set off the GST paid on goods and services used during construction by claiming an Input Tax Credit (ITC). This reduces their overall tax burden. However, ITC cannot be claimed for completed projects or those sold post-completion certificate issuance.

---

Rate of GST on Real Estate Transaction

The GST Council has established varying GST rates for real estate transactions, dependent on factors such as the type of property (affordable or non-affordable housing) and the project stage (under construction or completed). The applicable GST rates are as follows:

• Residential Property (Affordable Housing Scheme):
  For affordable housing, the GST rate is 1%, and it is applicable without the benefit of Input Tax Credit (ITC). Affordable housing is defined as a residential unit with a carpet area of up to 60 square meters in metropolitan cities or 90 square meters in non-metropolitan cities, with the total property price not exceeding ₹45 lakhs. This concessional rate was introduced under the government’s “Housing for All” initiative to encourage affordable housing development and ownership.
• Residential Property (Non-Affordable Housing Scheme):
  The GST rate for residential properties that do not fall under the affordable housing category is 5% without the benefit of the Input Tax Credit (ITC). This rate applies to the sale of under-construction properties, with builders unable to claim ITC on such transactions.
• Commercial Properties (Shops, Godowns, Offices, etc.):
  The GST rate for commercial properties, such as shops, offices, or under-construction commercial spaces, is 12% with the benefit of Input Tax Credit (ITC). Builders can claim ITC on these transactions, which helps reduce their overall tax liability.

---

GST on Additional Charges

As part of a sale of housing property, developers often recover charges from the customer in addition to the basic sale price, such as preferential location fees for premium properties. These charges are directly linked to the property purchase and wouldn't be applicable without it. Similar charges are levied for car parking, clubhouse memberships, and other amenities.

The GST Act recognizes the concept of composite supply, which involves a bundle of goods or services naturally supplied together. In such cases, the entire supply is taxed at the rate applicable to the primary supply. The additional charges levied by developers, including preferential location fees, car parking, and amenity charges, are considered part of a composite supply, with the primary supply being the construction of the housing complex.

---