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Every buyer of an under-construction flat asks about GST. Most have heard that it is 5%, some have heard 1%, and many think ready flats are tax-free. Your sales team needs to answer clearly and consistently, and your cost sheets need to show it correctly.
This article summarises the GST scheme for residential real estate that applies from 1 April 2019, explains what counts as affordable housing, and covers the questions buyers ask most often.
The rules below come from Notification 11/2017-Central Tax (Rate) as amended, particularly by Notification 03/2019. GST law changes through notifications. Confirm current rates and your project's position with your tax adviser.
01The two rates
From 1 April 2019, construction of residential apartments by a promoter in a residential real estate project attracts GST at an effective rate of:
- 1% on affordable residential apartments
- 5% on other residential apartments
Both rates are without input tax credit. The notification states the rates on the total amount after deducting one-third as the deemed value of land. So the notified rate of 1.5% on two-thirds of the price gives an effective 1%, and 7.5% on two-thirds gives 5%.
Commercial apartments such as shops in a residential real estate project, where the commercial carpet area is not more than 15% of the total, are generally taxed at the same effective 5%.
02What counts as an affordable residential apartment
An apartment qualifies for the 1% rate if it meets both conditions:
| Condition | Metropolitan cities | Other cities and towns |
|---|---|---|
| Carpet area | Up to 60 square metres | Up to 90 square metres |
| Gross amount charged | Up to ₹45 lakh | Up to ₹45 lakh |
Apartments in certain government housing schemes also qualify regardless of these limits. Check the notification for the list.
03Worked examples
| Flat | Location | Carpet area | Price (₹) | GST rate | GST (₹) |
|---|---|---|---|---|---|
| 1 BHK | Thane (MMR) | 38 sq m | 42,00,000 | 1% | 42,000 |
| 2 BHK | Nashik | 62 sq m | 44,00,000 | 1% | 44,000 |
| 2 BHK | Pune | 58 sq m | 68,00,000 | 5% | 3,40,000 |
| 3 BHK | Bengaluru | 95 sq m | 1,40,00,000 | 5% | 7,00,000 |
GST is charged on each instalment as it is billed. In a construction-linked plan, the buyer pays GST with every demand.
04No input tax credit
Under this scheme the developer cannot claim input tax credit on cement, steel, contractor services and other inputs. The GST paid on inputs becomes part of the construction cost and is reflected in pricing.
The notification also requires promoters to buy at least 80% of inputs and input services, by value and excluding certain items, from GST-registered suppliers. Tax on any shortfall is payable under reverse charge, generally at 18%. Procurement teams need to track this through each financial year.
05Ready-to-move flats
Under Schedule III of the CGST Act, sale of a building is neither a supply of goods nor of services, except where any consideration is received before the completion certificate is issued or before first occupation, whichever is earlier. In practice, a flat sold after the completion certificate, with the entire price received after it, attracts no GST.
This is why developers often market remaining units after completion as GST-free. If a buyer booked before completion and paid part of the price earlier, GST applies to the instalments received before completion.
06Projects that started before April 2019
Projects that were ongoing on 1 April 2019 had a one-time option to continue under the earlier rates (12% and 8% effective, with input tax credit) or move to the new rates without ITC. Some older projects may still be on the earlier scheme. Your accounts team will know which option each project chose.
07How to show GST on a cost sheet
- Show the agreement value and the GST rate on separate lines.
- State whether the project is under the 1% or 5% rate and why.
- Show GST per instalment in the payment schedule, not only as a total.
- Keep stamp duty and registration on separate lines. They are state levies, not GST.
- For possession-stage charges such as maintenance, show the GST treatment separately as advised by your accountant.
When cost sheets are built by hand, GST lines are a common source of errors: wrong rate, missing on some charges, or applied on stamp duty. LeadOne AI's quotes and cost sheets apply the project's GST rate to the right lines automatically.
08Questions buyers ask
09GST on other charges in the cost sheet
Cost sheets carry many charges besides the base price. Their GST treatment depends on whether they are part of the consideration for the apartment or a separate supply. The table shows how developers commonly approach them. Confirm each line for your project with your tax adviser, because rulings on individual charges have varied.
| Charge | Common approach | Note |
|---|---|---|
| Floor rise, PLC | Part of the apartment price, taxed at the apartment rate | Charged with the instalments |
| Car parking sold with the flat | Usually part of the apartment price | Check if sold separately |
| Club membership, amenities | Depends on whether bundled or separately charged | Separate charges may attract a different rate |
| Advance maintenance | Treated as a separate service, commonly at 18% | Billed at possession |
| Corpus fund | Depends on how it is structured and held | Take advice |
| Stamp duty, registration fee | Not subject to GST | State levies |
10Training your sales team on GST
- Give every rep a one-line answer per project: 'This project is under the 5% GST rate without input tax credit.'
- Explain the affordable housing test with one example from your own price list.
- Show where GST appears on the cost sheet and in each demand letter.
- Tell reps to refer detailed tax questions to the CRM or accounts team instead of guessing.
