GST and ITC on building purchased and intended to be sold while under construction - issues for brain storming.

[DEV KUMAR KOTHARI]

A trader or investor has entered into agreement with builder and promoter for purchase of some units in a complex or building

Construction and completion will take about 5-6 years. Therefore, the buyer has option to sell or transfer the building / unit during construction before completion.

Builder is charging GST on proportionate sale value of land and construction in phases in Tax Invoice raises  as per agreement.

Buyer will also have to levy GST in tax invoice,if he sells the building or any part of it before completion.

Therefore, prima facie, GST paid must be eligible for credit for ITC and accumulated in ITC ledger. 

ITC so accumulated should also be eligible for credit adjustments against GST payable by buyer.

Relevant questions for brain storming are:

Whether,GST is correctly levied by builder, is thee any exception?

Whether, ITC must be allowed to be credited, accumulated and utilised in normal course?

Whether, credit of ITC can be availed against any sale of any goods or services by buyer of property  in progress and before completion?

Or whether, credit shall be allowed only against sale of the same property which was bought during construction and GST was levied by builder?

Whether,buyer of property need to get registered under GST laws to avail ITC even if he has no other business? 

If yes, whether registration has to be obtained after entering into agreement to buy or it can be obtained before selling property under construction when he will be liable to get registered?

If registration is obtained later at the time of selling, whether ITC for earlier period payment of GST invoices can be claimed,

Any other relevant legal and procedural aspects. 

Please suggest safest normal course to avoid litigation.

[Sadanand Bulbule]

Dear Sir

My experience says as follows:

For under-construction property, ITC is normally not allowed to the buyer (Section 17(5)(d)), so do not plan business assuming ITC benefit.

Safest path: take GST registration early if reselling, but for clean, no-dispute deals—prefer selling after completion certificate where no GST applies.

However further discussion by the experts would clear the dark clouds.

[DEV KUMAR KOTHARI]

Dear Mr. Bulbule,

Please consider the following explanation 

Explanation [1].- For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

The bold words are in connection with amount capitalised (for fixed assets used in business) and therefore, it will not apply to property held for trading / resell etc. in incomplete condition. In case of stock-in-trade or asset held for resell it is addition to stock and is not capitalisation in this context.

Thus when incomplete property is purchased and is also sold in incomplete condition, description of input and out put is the same or similar.  Hence ITC should not be denied.

This stand also find support when we find provisions for allowing ITC when concerned / restricted  item is used for further supply as such and also when such item is used in further supply of goods and / or services for example items covered in (a),(aa), (ab) of S.17(5) and also in case of S.10 becoming inapplicable, new registration u.s. 25.3 etc. (vide S.18 - Availability of credit in special circumstances.)

Let us brain storm on such interesting issue which will pave way for other situations also.

Please share your views.

Thanks.

[Mr. Heet Shah]

Whether,GST is correctly levied by builder, is there any exception?

The GST is applicable and shall be levied by the builder for under construction property. 

Exception depends on type of supply . The property may be commercial, industrial, residential, rera registred or non Rera 

Supply may also include only pure labour service, Supply of just material or it may be Works contract service 

Whether, ITC must be allowed to be credited, accumulated and utilised in normal course?

Usually the ITC is not allowed for immovable property but an investor or trader buying and selling property may avail the ITC for Tax accumulated on furtherance of supply.  

The major concern lies in the area of RCM where u pay the taxes using ur bank account and the cant avail the ITC for the same. 

Whether, credit of ITC can be availed against any sale of any goods or services by buyer of property in progress and before completion?

- Yes 

Or whether, credit shall be allowed only against sale of the same property which was bought during construction and GST was levied by builder?

- There is no such restriction on credit allowance as such under GST

Whether, buyer of property need to get registered under GST laws to avail ITC even if he has no other business?

- Buyer may need not register since ITC is not allowed in normal scenario. However in case the invested property is to be sold in under construction stage they would be to discharge GST for which they may obtain a registration 

If yes, whether registration has to be obtained after entering into agreement to buy or it can be obtained before selling property under construction when he will be liable to get registered?

Before the supply takes place or advance is received. 

If registration is obtained later at the time of selling, whether ITC for earlier period payment of GST invoices can be claimed- NO

Any other relevant legal and procedural aspects. - Real estate is really complex industry and is so dynamic on case-to-case basis so there is no upfront solution to apply it as thumb rule. 

Please suggest safest normal course to avoid litigation.

Prepare a cost sheet, with descriptive details Understand the accounting in terms of Income Tax, Accounting standards and GST implication parallelly 

[DEV KUMAR KOTHARI]

Thanks Heet ji, for detailed reply.  I agree to your views except the following modifications/ differences

I think registration should be obtained as soon as possible after entering into buying agreement to record GST paid to vendor and ITC accumulated to claimed on GST portal without any delay. 

Particularly so because in case of real estate deal, amount will be large.

Regarding RCM- I think ITC should be allowed (except for not eligible items of input)

Reason being GST is paid by receiver for the reason that supplier is not registered hence RCM is applied to receiver.

If RCM is paid on input used in furtherance of supply/business there is no reason to deny ITC. It is only for convenience of GST department and some sort of suppliers that obligation is cast upon receiver)

Therefore I request you to reconsider your following view

"The major concern lies in the area of RCM where u pay the taxes using ur bank account and the cant avail the ITC for the same. "

Let us brain storm.

Please upload/ update your profile for proper introduction particularly because name HEET can be of a brother as well as of a sister.

[Sadanand Bulbule]

Dear Dev Sir

I welcome your views. 

[Sadanand Bulbule]

Dear Dev Sir

Since you have touched the right chord under Section 17(5)(d), I express my bitter experience ias under:

Section 17(5)(d) is intended to block input tax credit only where an immovable property is constructed for the taxpayer’s own consumption or occupation—i.e., “on his own account”—and not where such property is constructed for further outward taxable supply such as renting or leasing. Denying ITC in cases where the very purpose of construction is to generate taxable rental income leads to double taxation and breaks the value-addition chain, which is contrary to the foundational principles of GST. The Orissa High Court’s ruling in Safari Retreats, left undisturbed by the Hon’ble Supreme Court, has already clarified that ITC must be allowed where the completed property is used for outward taxable supplies. Therefore, it is essential that adjudication aligns with the statutory intent and judicial guidance to prevent unsustainable demands and ensure uniformity and fairness in GST administration.

Therefore I urge the CBIC to issue strict instructions to align with the findings of Apex Court judgement in Safari Retreat case clarifying the correct position of law before and after retrospective amendment to Section 17(5)(d) of the CGST Act, 2017 to stop unlawful and unjustifiable demands being saddled by the senior most Adjudicating Authorities.  This is on record. 

[DEV KUMAR KOTHARI]

Please refer to my article Unfortunate retrospective amendment in GST laws when there was no scope of doubt or ambiguity in provisions. More so when it is to nullify law as interpreted and finally declared by honorable Supreme Court - whether amendment to substitute word or with and in between word plant and, machinery will serve purpose of such amendment? dt. 07.02.25 on this website.

I think amendment is result of whims and prejudices of departmental authorities though approved by legislators in routine manner. The amendment should not make difference because in phrase plant and machinery plant is overed as a wider notion and machine is in narrow sense.

A machine is definitely plant but each plant is not necessarily machine. So plant as well as machine both are exclusive and not one thing. even if plant and machinery phrase is used.

In income tax Act we find definition of plant inclusive though some items are excluded.

In common parlance we find expression plant, as entire setup. As per industry terminology besides plant expressions like mills estates, factory or karkhana are used to convey picture and  meaning of entire setup like steel plant, rolling mill, aluminium plant, sugar mill, cotton mill, textile mill etc. by which we understand entire setup including roads, buildings, furniture, plant and machinery, tools and equipment  designed and established to produce  and /or manufacture  desired product. 

Question is whether without roads, water sources, buildings, machinery can work - obvious answer is no. Therefore, before installation of machinery proper building is must. Hence exclusion is illogical, improper, not an intelligible difference.

In my view it makes no difference whether plant or machinery or plant and machinery phrase is used. 

[Shilpi Jain]

Whether the property under consideration is commercial or residential? Facts need to be clear.

If you wish to take ITC you need to register before the seller issues invoice.

 

[DEV KUMAR KOTHARI]

Thanks, Shilpi ji.

I think so far  issue of GST and ITC is concerned, nature of residential or commercial will not make a difference. The rates can be different. 

AI Summary

Under-construction property GST and ITC: register early; ITC often blocked for immovable property but may be claimable for onward taxable supply. Buyers of under construction units who resell before completion must charge GST and face the question whether input tax credit (ITC) paid to the builder can be accumulated and utilised. The forum contrasts a restrictive reading that blocks ITC for immovable property with the view that ITC is claimable where the property is held for onward taxable supply, notes RCM complications, and emphasises that GST registration must be obtained before issuing taxable invoices to preserve ITC claim; later registration generally precludes earlier ITC claims.