GST on Real Estate & Construction

GST on real estate and construction is governed primarily by Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019, which introduced a concessional-rate scheme for residential real estate projects (RREP) effective 01.04.2019, in place of the earlier 12%/8% (with ITC) regime for such projects.

Under this scheme, construction of affordable residential apartments attracts GST at an effective rate of 1% (without Input Tax Credit), where "affordable housing" is defined as a residential unit with carpet area up to 60 square metres in metropolitan cities or 90 square metres in non-metropolitan cities/towns, and a gross value not exceeding ₹45 lakh. Construction of residential apartments other than affordable housing attracts an effective rate of 5% (without ITC). Commercial apartments within an RREP (i.e., a project where commercial carpet area does not exceed 15% of total carpet area) also fall within the 5% RREP scheme; commercial apartments in a project that is not an RREP continue to attract 12% with ITC.

The concessional 1%/5% rates are conditional on non-availment of Input Tax Credit by the promoter/developer on inputs and input services attributable to such supply. For ongoing projects as on 31.03.2019, promoters were given a one-time option (exercisable by 10.05.2019, per the prescribed transition mechanism) to continue under the old 8%/12% rates with ITC, or to shift to the new 1%/5% scheme without ITC; failure to exercise the option resulted in default migration to the new rates. Where a promoter procures less than 80% of inputs and input services from registered suppliers in a financial year, RCM under Notification No. 07/2019-Central Tax (Rate) applies on the shortfall, and any ITC reversal required on transition is computed per the formulas in Annexure I (for RREP) and Annexure II (for non-RREP) to the notification.

GST on real estate and construction applies a special rate scheme to the supply of construction services in the sector. Under the CGST Act 2017, the construction of residential apartments and commercial units is a supply of service, and the rate regime notified under the Act applies the reduced rates — VERIFY: 1% on affordable housing and 5% on other residential apartments — on the value of the construction service, with the input tax credit denied and passed on as the lower price. The scheme replaced the earlier higher-rate-with-credit position for new projects.

The real estate rate regime changes the economics of the builder's tax. The project pays the low rate but cannot claim the credit on the inputs — the cement, the steel, the sub-contractors — so the effective cost is not the headline rate but the rate plus the lost credit. The choice between the schemes for projects, the treatment of the land value in the taxable value, and the compliance with the special provisions are where the real estate GST position is decided.

The cost of a misapplied scheme is the rate differential at audit: a project claimed under the wrong scheme, credit claimed where the special rate applies, or the land component mis-stated — each builds a demand with interest under the Act. The sector's compliance is layered — the project registration, the scheme election, the credit reversal, the TDS on the purchases.

This service is for builders, developers, contractors and investors in real estate. We map the project to the applicable rate scheme under the notified provisions, handle the scheme election and the credit position, compute the taxable value with the land component, manage the compliance — the registration, the returns, the TDS under the Act — and review the positions before the audit.