GST on Flat Purchase: Current Rates, Exemptions & Rules
12 May, 2025
By Online Legal India
Published On 12 May 2025
Category GST
Understanding Goods and Services Tax (GST) is crucial for real-estate buyers in India, as it directly impacts the overall cost of buying a flat. Factors like whether the property is under construction, its type, and available exemptions all play a role. Knowing the current GST rates, eligibility for exemptions, and related rules helps buyers make informed and financially wise decisions. This article explains the rates of GST on flat purchases, available exemptions, and the key rules, offering clear guidance for potential homeowners.
The Goods and Services Tax (GST) is a unified indirect tax introduced in India on July 1, 2017, under the 101st Constitutional Amendment Act. It replaced multiple central and state taxes, such as VAT, excise duty, and service tax, creating a single tax regime for the entire country.
GST is levied at each stage of the supply chain, with the final tax burden borne by the end consumer. Businesses can claim input tax credit (ITC) for taxes paid on purchases, which ensures that tax is levied only on the value added at each stage. This mechanism reduces the cascading effect of taxes and promotes transparency in the taxation process. The GST Council, comprising the Union Finance Minister and State Finance Ministers, governs the GST regime, determining tax rates, exemptions, and other related matters.
As per the latest guidelines, the Goods and Services Tax (GST) rates applicable to flat purchases in India are as follows:
Under the Goods and Services Tax (GST) framework in India, under-construction residential properties classified as affordable housing attract a concessional GST rate of 1% without the benefit of Input Tax Credit (ITC). To qualify for this category, the property must meet specific criteria, like:
These criteria are established to ensure that the benefits of the reduced GST rate are directed towards the intended demographic, which promotes homeownership among middle and lower-income groups.
A GST rate of 5% is applicable without ITC. This rate applies to residential properties that do not meet the criteria for affordable housing.
A GST rate of 12% is charged with the availability of ITC. This rate is applicable to commercial units such as shops, offices, and other commercial establishments.
Understanding the applicability of GST based on the construction status of the property helps homebuyers make informed decisions and plan their finances accordingly.
In India, the Goods and Services Tax (GST) does not apply to certain real estate transactions, which provides relief to homebuyers in specific scenarios.
GST does not apply to ready-to-move-in flats that have received a Completion Certificate (CC) from the competent authority. Once a flat is completed and the CC is issued, it is considered a finished good and falls outside the scope of GST, as per Schedule III of the Central Goods and Services Tax (CGST) Act, 2017. Therefore, buyers of these completed properties are not liable to pay GST.
The resale of residential properties is not subject to GST. Since these transactions involve the sale of already constructed and occupied properties, they fall outside the purview of GST. However, buyers should note that stamp duty and registration charges, which vary by state, are still applicable on such transactions.
The purchase of land is exempt from GST. The sale of land is neither treated as a supply of goods nor as a supply of services, and thus, GST is not levied on such transactions. This exemption applies to both residential and commercial land purchases.
These exemptions are designed to reduce the tax burden on homebuyers and promote investment in the real estate sector.
Input Tax Credit (ITC) is a fundamental aspect of the Goods and Services Tax (GST) system in India, which allows businesses to offset the GST paid on inputs against their output tax liability. However, its applicability varies between residential and commercial real estate transactions.
For residential properties, particularly under-construction units, the GST Council revised the tax structure effective April 1, 2019. Under this structure, affordable housing is taxed at 1% and other residential properties at 5%, both without the benefit of ITC. This means that developers cannot claim credit for the GST paid on construction materials and services, potentially increasing the overall cost of housing projects. Consequently, buyers of residential properties are not eligible to claim ITC.
In contrast, commercial real estate transactions are generally subject to a 12% GST rate with ITC benefits. Developers and businesses can claim ITC on the GST paid for inputs used in the construction of commercial properties intended for sale or lease. This provision helps in reducing the effective tax burden on commercial real estate projects.
It is noteworthy that legal interpretations have influenced ITC applicability. For instance, the Supreme Court of India, in the case of Safari Retreats Pvt. Ltd., held that ITC could be claimed on the construction of commercial buildings intended for leasing, treating such buildings as "plant and machinery."
However, subsequent legislative amendments have aimed to restrict ITC claims on construction costs for immovable properties on one's account. This impacts the commercial real estate sector.
When you purchase an under-construction flat in India, the Goods and Services Tax (GST) is levied only on the construction component of the property. The land value is exempt from GST, and for calculation purposes, one-third of the total property value is considered as the land component. Therefore, GST is applied to the remaining two-thirds of the property's value.
The formula to calculate GST on an under-construction flat is: GST Amount = (Total Property Value × 2/3) × Applicable GST Rate
In the context of calculating Goods and Services Tax (GST) on under-construction property purchases in India, the "2/3" factor is employed to exclude the land component from the taxable amount. This is based on a standard deduction where one-third of the total property value is considered as the value of the land, which is exempt from GST. Consequently, GST is levied only on the remaining two-thirds of the property's value. This represents the construction cost.
If an under-construction flat is priced at Rs.60 lakh, the land value is assumed to be Rs.20 lakh (one-third), and GST is applied to the remaining Rs.40 lakh (two-thirds). This method simplifies the tax calculation by standardizing the land deduction across transactions.
It is important to note that this one-third land deduction is a standard approach. However, if the actual land value is ascertainable and differs from the standard deduction, it may be considered for GST calculation purposes.
Example 1: Affordable Housing
Consider an under-construction flat priced at Rs.42 lakh, which qualifies as affordable housing. The applicable GST rate is 1%.
Thus, the buyer would pay Rs.28,000 as GST on this property.
Example 2: Non-Affordable Housing
For an under-construction flat priced at Rs.75 lakh, which does not qualify as affordable housing, the applicable GST rate is 5%.
In this case, the buyer would pay Rs.2,50,000 as GST on the property.
It is important to note that GST does not apply to ready-to-move-in flats that have received a Completion Certificate (CC) from the competent authority.
When you purchase a flat in India, you must account for additional charges beyond the property's base price, notably stamp duty and registration fees. These charges vary across states and are influenced by factors such as property location, value, and the buyer's profile.
Stamp Duty
Stamp duty is a state-imposed tax on property transactions, typically ranging from 3% to 8% of the property's value. The exact rate depends on the state, the property's location (urban or rural), and the buyer's profile.
For example, in Maharashtra, stamp duty rates range from 3% to 6%, while in Delhi, they vary between 4% and 6%. Some states offer concessions to female buyers or first-time homeowners.
Registration Charges
Registration charges are additional fees for legally recording the property transaction. These charges typically range from 0.5% to 1% of the property's value. For example, in Karnataka, the registration fee is 1% of the property's value, while in Uttar Pradesh, it is 1% for male buyers and 0.5% for female buyers.
Buyers should be aware that these charges are over and above the property's base price and can significantly impact the overall cost. Therefore, it is advisable to factor in these expenses during the financial planning for property purchases.
Why Developers Should Register GST?
1. Input Tax Credit (ITC)
One of the most significant benefits for building developers under GST is the availability of Input Tax Credit (ITC). By registering under GST, developers can claim credit on the GST paid for goods and services used in the construction process. This includes inputs like cement, steel, tiles, paint, and professional services such as those provided by architects, engineers, and contractors. ITC helps reduce the overall tax burden, thereby lowering project costs and improving the developer’s profitability.
2. Legal Compliance & Eligibility
GST registration ensures that the developer operates within the legal framework set by the government. It is mandatory for businesses exceeding a turnover of ?20 lakh and essential for engaging in formal transactions. Registered developers are eligible to participate in government projects and large-scale developments, which often require vendors to be GST-compliant. This opens up more business opportunities and enhances the company’s market credibility.
3. Simplified Tax Structure
Before GST, developers had to deal with a complex tax system involving multiple indirect taxes like VAT, service tax, and excise duty. GST has streamlined this by replacing all of them with a single unified tax. This simplifies tax calculations, compliance requirements, and return filing, making it easier for developers to manage finances and focus more on project execution than on tax administration.
4. Transparent Invoicing
GST registration allows developers to issue tax-compliant invoices, clearly showing the applicable GST on the sale of under-construction flats. This transparency boosts customer confidence and reduces doubts about hidden charges. Buyers are more likely to trust developers who provide clear, itemized billing that includes statutory taxes, which can be a key differentiator in a competitive real estate market.
5. Improved Business Reputation
Being GST-registered enhances the professionalism and credibility of a developer in the eyes of both buyers and investors. It signals that the developer follows proper regulatory norms and is committed to financial transparency. This improves brand perception, attracts quality clientele, and gives the business a competitive edge in the market.
GST has played a pivotal role in bringing uniformity and transparency to the residential real estate sector in India. This benefits both homebuyers and developers.
Conclusion
GST on flat purchases plays a crucial role in determining the overall cost for homebuyers, especially for under-construction properties. It brings transparency to real estate transactions and helps curb hidden charges. However, the exclusion of GST on ready-to-move-in flats offers relief to buyers and promotes timely project completion. Understanding the GST structure helps buyers make informed decisions while navigating the property market. It’s essential to consult professionals for accurate GST implications before finalizing any flat purchase.
If you want to learn more about GST on flat purchase, you can contact Online Legal India. Besides, developers of any property can get assisted in getting GST registration from us. Contact our experts today.
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