GST on Under-Construction Property - Builder Charging on Full Amount

[Rohit Koth]

Im seeking some advice and clarification rgarding GST on an under-construction flat purchase.

I recently booked a flat, and my builder is asking for GST to be paid on the full agreement value. However, based on my research, I believe the GST should only be applicable on two-thirds of the total amount.

My understanding is that GST is not applicable on the land value. For under-construction properties, the law considers one-third of the total flat price as the land value, and thus GST should be levied only on the remaining two-thirds.

Ive already discussed this with my builder, but they insist on charging GST on the entire amount. Ive also checked with a couple of other builders, and theyve given me the same information.

My Questions:

 * Is my understanding of the GST law correct? Is it true that GST for an under-construction property is legally applicable on only two-thirds of the agreement value?

 * How can I effectively convince my builder? What official documents or legal provisions can I refer to to make them comply with the law?

 * If I am forced to pay GST on the full amount, can I claim a refund for the extra amount from the government later? If so, what is the process?

Id be grateful for any insights, advice, or references to the relevant GST laws.

Thank you in advance!

[Sadanand Bulbule]

Correct Position under GST Law:

1. GST not applicable on land value : As per Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 (as amended), while taxing under-construction property, the law provides a mandatory deduction of one-third (1/3rd) of the total consideration towards the value of land.  Thus, GST is applicable only on the remaining two-thirds (2/3rd) of the agreement value.

2. Builder’s Demand on full value is wrong:  Charging GST on the entire agreement value (without deducting 1/3rd land portion) is not as per law. Multiple advance rulings and CBIC FAQs have also clarified this.

3,What You Can Do:

1. Show Builder the Law Refer to Notification 11/2017-CT (Rate), entry relating to construction of complex/building. Point out the 1/3rd deduction rule clearly mentioned. CBIC FAQs on Real Estate also explain this.

2. Ask Builder for Correct Tax Invoice. The builder is obliged to raise a valid GST invoice as per law. If they charge on full value, they are at risk of litigation.

3. Refund Option: If you are forced to pay GST on the full amount, it becomes very difficult to claim refund directly from the Government because only the supplier (builder) can file refund of excess tax. The practical solution is to get the builder to correct it and issue revised invoice.

3.Otherwise, you would need to approach GST grievance cell. 

Advice: Do not pay GST on full agreement value. Ask for a corrected invoice with 1/3rd deduction for land.

[Shilpi Jain]

The rate of tax is 7.5% for construction of residential complex.

You are right that GST is to be paid on only 2/3rds value.

COnsidering this the builder is saying that you pay GST @ 5% (and not 7.5%) on the entire sale value.

You are right but pls note that GST rate will be 7.5% on the 2/3rds value.

[Sandeep B.]

Hello Shilpi,

This might be helpful  to correct your statement:

a> Judgemnt for GST on under-construction Flat/Property

Kindly refer the table in the article. It might clear your view.

In additon to that, we also need to check that GST HSN code 9954 is also enrolled by Developer or Owner. The HSN code 9954 is the "family code" for all Construction Services. This code is further divided into specific sub-categories. Kindly correct me if I am wrong.

Looking forward for your response.

Thanks 

Sandeep

[Rohit Koth]

 Thanks for answering my query.

I"m seeking clarification on the correct GST calculation for under-construction residential properties. I"ve encountered conflicting information and would appreciate expert insight.

When i explore more so as per calculation of various big builder they are saying 5% & 1% GST rate applicable after 2/3rd of agreement price below are reference link:

https://www.lodhagroup.com/blogs/homebuyers-handbook/gst-2025-and-its-key-rates-and-impact-on-real-estate

https://www.sobha.com/blog/gst-on-under-construction-property/

Also government insisting in their FAQ they are saying 1/3rd deduction applicable on under-construction residential properties GST rate which are 5% (non-affordable) and (1% for affordable)

FAQs on real estate

Check Question No: 36

My main points of confusion are:

1. GST Calculation Method:  Is the GST rate 5% for non-affordable, 1% for affordable property before 1/3rd  deduction or after deduction ? please provide some govt reference link for clarification.

2. Clarification on GST Rates: While the official GST slabs are 5%, 12%, 18%, and 28% then when 7.5% and 1.5% rates slab are introduce. Please share some govt reference where its mention actual GST rates on under-construction residential properties 7.5 % and 1.5% before 1/3rd is deduction.

3. Official Reference: Could someone provide an official government source or a legal reference that clearly states the current, correct calculation method? This would help settle the confusion.

Thank you in advance for your help in clarifying this matter.

[Vishwajit]

Thanks for this thread Rohit. Had a similar situation and it made me dig a bit deeper into why theres this confusion. I had consulted a CA who also said that I should be charged 5% and exclude 1/3rd land cost. 

Conclusion on this: GST has recommended 7.5% on construction value with 1/3rd abatement for land, which is equivalent of having 5% on total sale value.
Recorded in the Notification No. 03/2019-Central Tax (Rate).

https://indiantradeportal.in/uploads/General%20Documents/NU_SPS-TBT/01-04-2019/notfctn-3-2019-cgst-rate-english.pdf

Confusion seems to be around reference to 5% GST. But if you look closely, all official references mention as "effective" rate which is different than nominal rate (for instance, income tax slab rate vs effective tax rate on your entire income). 

Official GST council doc which refers to "effective GST rate" of 5% is here -

https://gstcouncil.gov.in/sites/default/files/2024-10/33rd_gst_press_information_bureau.pdf

Disclaimer: I am not an expert in any of this, just a customer who was frustrated with conflicting references floating around. Please do your due diligence.

AI Summary

GST calculation on under construction property: deduct land value portion, tax applies only to remaining construction consideration. A mandatory land value deduction requires treating one third of the total consideration as land, so GST is chargeable only on the remaining construction value; statutory rate instruments set the nominal rate on construction services while administrative materials explain the resulting effective rates on total sale value. Buyers should insist on a corrected tax invoice reflecting the deduction; if charged on the full amount, refunds are practically pursued by the supplier, so buyers must seek a revised invoice or use GST grievance mechanisms.