GST on Under Construction Flats in India: Guidelines and Exemptions

India’s Goods and Services Tax (GST) plays a significant role in determining the tax implications of real estate transactions. When it comes to buying an under-construction flat from a landowner or builder, understanding whether GST applies can be crucial. This article aims to clarify the tax implications involved, including the different rates and exemptions.

Applicability of GST

Yes, GST is applicable on the purchase of an under-construction flat. The rate varies based on whether the flat is affordable housing or non-affordable housing. For affordable housing, the GST rate stands at 1%, and for non-affordable housing, it is 5%. However, it's important to note that certain aspects of construction, such as grant of developmental rights, long-term lease of land, floor space index, and the value of some utilities, are excluded from this calculation.

Exclusions from GST Calculation

The following services are excluded from the GST calculation for the construction of residential apartments:

Grant of Developmental Rights Long-term Lease of Land Floor Space Index Value of Electricity Value of High-speed Diesel Motor Spirit and Natural Gas

When is GST Applicable?

No GST is required to be paid on the sale of a construction after its first occupancy. This applies to transactions where the entire consideration is paid after the issuance of the completion certificate or after its first occupancy, whichever comes earlier.

Summary of GST Rules

According to the GST laws, the construction of a complex building intended for sale to a buyer is considered a service and is liable for GST if any consideration is received before the issuance of the completion certificate. But if the entire consideration is paid after the issuance of the completion certificate or after its first occupancy, GST is not applicable.

In the case of direct purchases from a builder, where payments are made before occupation, GST would be payable on the amount paid. However, if the property is purchased from an owner in a secondary transaction, then GST is not applicable since the payment is made after issuance of the completion certificate or first occupancy.

Effective GST Rate on Under Construction Property

The effective GST rate applicable on the purchase of under construction properties, residential or commercial, from a builder involving the transfer of property in land or undivided share of land to the buyer is 12%, with full Input Tax Credit (ITC). This rate applies even when the property is still under construction and the consideration has already been paid before the issuance of the completion certificate.

Exempted Transactions

There are some specific situations where GST is not applicable:

Construction Before GST Implementation: If all payments for a construction were made before July 1, 2017, no GST would be payable even if the construction is completed after this date. CLSS Property: Under the Credit-Linked Subsidy Scheme (CLSS), which aims to provide affordable housing to lower and weaker sections, the maximum annual income for eligibility is up to Rs 18 lakh. The effective GST rate on such houses is 8%, and not 12%. The beneficiaries under the CLSS scheme are eligible for this lower rate.

Conclusion

Understanding the application of GST in real estate transactions is essential for both buyers and sellers. Whether the transaction involves the purchase of an under-construction flat or a completed flat, the steps and calculations involved can differ. By adhering to the GST laws, one can ensure a smooth and tax-compliant transaction.