GST ON UNDER CONSTRUCTION FLAT PURCHASED & SOLD BY BUILDER AS AN INVESTMENT

[Kalpesh Shah]

Respected Experts,

Your Opinion is required on following Querry.

Facts of the Case

My Client is a Partnership Firm and their Nature of Business is Builders & Developers.

They want to Purchase an Under construction Residential Unit (1 Unit) by Paying Applicable GST.

If they resale this Residential Unit before receiving Occupancy Certificate, then what will be Rate of GST Applicable to them ? Is it 18% or 12% (i.e. after allowing 1/3rd Deduction for Land Component in the unit Value) ?

Is GST paid at the time of Purchase of this unit will be allowed as ITC ?

[Himansu Sekhar]

Is it possible that sale deed will be made for an under construction building?

[KASTURI SETHI]

Yes. The supply/sale of under construction property is legally allowed. It is also practically possible.

In the above scenario, rate of GST is 12%.

Yes. ITC is permissible under Works Contract Scheme/Service. Not hit by Section 17(5) of CGST Act.

[Kalpesh Shah]

Kasturi Sir

Thank you for your views.

But if my client is entering into this transaction as an Investor and not as a builder & Developer, then too it will get 1/3rd Deduction for Land Component ?

[KASTURI SETHI]

Investor is behind the curtain. He is not supplier of service.

AI Summary

GST on under-construction property: reduced rate after land-component deduction, with input tax credit available under works contract rules.
Where an under construction residential unit is sold before completion, the supply remains taxable as an under construction property and the taxable value may reflect a land component deduction (commonly taken as one third), yielding a reduced GST incidence; input tax credit on GST paid at acquisition is available under the works contract/service scheme and is not precluded by blocked credit provisions, and the purchaser's status as an investor does not alter the characterization of the supply.