GST on Plots, Property and More

The Goods and Services Tax (GST) 2017, has ushered in substantial changes to the Indian real estate industry today. These changes are impacting land transactions as whole, but also sale of developed plots, completed houses, and townships. Comprehending these implications is important for all developers, investors, and buyers.

In order to comply with taxation and maximize financial planning as both buyers and sellers it is pertinent to understand the law at hand. Lets learn about the applicability of GST and GST rate on various types of property transactions and latest changes in the law.

1. Understanding GST Applicability in Real Estate

When it comes to real estate transactions, the GST rates really depend on the “nature of the sale.” In simpler terms, the law makes a distinction between selling land, selling properties that are still under construction, and selling properties that are ready to move into.

1.1 GST on Sale of Plots

The sale of undeveloped land is exempt from GST. This is in accordance to Schedule III of CGST Act, 2017, sale of land is neither supply of goods nor supply of services. So, if a person sells a plot of land without any development, it does not attract GST.

But this exemption is only for “pure land” transaction. If any services or development activity is done on the land before sale, it may attract GST.

1.2 GST on Developed Plots

When land is sold with infrastructural development – roads, drainage, water pipelines, sewage systems, lighting – GST becomes applicable. Government has clarified through various advance rulings that such developments are “supply of services” and are liable to GST.

GST Rate: GST rate on developed plots is 18% but only on development cost and not on land value itself.

Recent Clarifications: AAR in multiple cases has held that GST is payable on the portion of the transaction attributable to land development.

Case Law: In a ruling by Madhya Pradesh AAR (2020, it was held that any plot sold with infrastructure development is supply of service and liable to GST.

2. GST on Fully Constructed Houses and Apartments

The taxation of fully constructed houses depends on whether the completion certificate has been issued at the time of sale.

2.1 Ready-to-Move-in Houses (No GST)

If a house or apartment is sold after obtaining the completion certificate from the relevant authority, it is treated as an immovable property.

Since GST does not apply to the sale of immovable property, no tax is levied on such transactions.

Example: If a person buys a ready-to-move-in apartment from a builder, no GST is applicable.

2.2 Under-Construction Properties (GST Applicable)

The sale of an under-construction property is considered a supply of service and is taxable under GST.

GST Rate:5% (without Input Tax Credit) for standard under-construction residential properties.

1% for affordable housing projects.

If a person books a flat before completion and makes payments in instalments, GST is applicable on each instalment.

2.3 GST on Joint Development Agreements (JDAs)

In a Joint Development Agreement or a JDA, a landowner collaborates with a developer to construct residential or commercial properties. JDAs involve different GST implications:

• Developer’s Obligation: The developer has to pay GST on the sale of constructed units before receiving the completion certificate.
• Landowner’s Obligation: If the landowner sells a share of developed property before receiving the completion certificate, GST is applicable.

GST Rate: The sale of under-construction flats by the developer attracts a 5% or 1% GST, depending on the project type.

Input Tax Credit (ITC): The GST rates on real estate projects do not allow ITC benefits, meaning developers cannot claim credit for GST paid on inputs like cement and steel.

3. GST on Township Developments and Infrastructure Projects

Township developments involve multiple aspects, such as residential units, commercial spaces, infrastructure development, and common amenities. The GST applicability varies for each component:

Residential Units: Under-construction units attract GST at 5% or 1%.

Common Infrastructure Development: The cost of roads, parks, water supply, and sewage treatment attracts 18% GST on the service portion.

Commercial Spaces: The sale of under-construction commercial units attracts 12% GST with ITC benefits.

4. Recent Changes in GST for Real Estate

4.1 GST Council’s Impact

As per the 34th meeting of the GST Council in 2019, the GST rates were revised for real estate to provide relief to homebuyers. The revised rates that are 5% and 1% were introduced without ITC to prevent tax evasion and ensure a simplified tax structure.

4.2 GST Exemptions for Affordable Housing

The government defines affordable housing as:

• A unit priced up to ₹45 lakhs.
• A unit size of up to 60 sq. meters in metropolitan cities.
• A unit size of up to 90 sq. meters in non-metro cities.

Such projects benefit from a lower GST rate of 1%, making housing more affordable for middle-class buyers.

4.3 ITC Restrictions and its Impact

Developers cannot claim Input Tax Credit (ITC) on building materials if they opt for the new tax rates. Without ITC, developers have to include GST costs in pricing, potentially increasing property rates. Some developers prefer the old 12% GST rate with ITC to reduce input costs.

5. Practical Challenges and Compliance Issues

5.1 Lack of Clarity in Developed Plot Taxation

While developed plots are taxable, there is no standardized formula to separate land value from the development cost. Developers and tax authorities often dispute the taxable portion.

5.2 Documentation and Compliance

Buyers and sellers must ensure that invoices clearly distinguish land cost and development cost to avoid unnecessary tax liabilities.

Thus, the developers must comply with the anti-profiteering measures to prevent price hikes in lieu of tax rate changes.

Conclusion

Understanding GST implications on real estate transactions is essential for both buyers and developers. While the sale of raw land and completed properties remains tax-free, transactions involving under-construction properties and developed plots attract GST.

Key Takeaways

• Sale of undeveloped plots is exempt from GST.
• Developed plots attract 18% GST on the development component.
• Under-construction properties attract 5% GST (1% for affordable housing).
• Fully constructed houses with a completion certificate are not subject to GST.
• Township developments have varying GST rates depending on the services included.
• Recent changes in GST rates have removed ITC benefits for new residential projects.

By staying informed about tax rate changes, ITC provisions, and compliance requirements, developers and homebuyers can navigate GST laws effectively and make informed real estate decisions.

Author Details- Apoorva Lamba (2nd Year Student Madhav Mahavidyalya,Jiwaji University,Gwalior)

References- 

https://getswipe.in/blog/article/gst-on-sale-of-land-and-plots

https://elplaw.in/wp-content/uploads/2023/10/Sale-of-Developed-Plot-Recent-GST-Circular-has-foxed-Developers.pdf

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