GST on Under-Construction vs Ready Property in India, Explained

Quick answer: GST on residential real estate in India applies only to under-construction property. Non-affordable residential is 5 percent without ITC. Affordable is 1 percent without ITC. Ready-to-move-in property with an Occupancy Certificate is not subject to GST at all. Commercial under-construction is 12 percent with ITC. Getting this correct on cost sheets and demand letters is not optional; it is the single most common source of buyer disputes and audit qualifications. This guide walks through the rates, definitions, and how a CRM keeps them right.

GST on residential real estate in India was rationalised in April 2019 into a simpler two-slab structure for under-construction property. The rules are actually straightforward once you separate residential from commercial and under-construction from ready. What causes trouble is that cost sheets and demand letters often get the split wrong, or invoice generic values from a spreadsheet, and buyers spot it. This is a practical guide for a builder in India.

The basic rule: what GST applies to which property

Property type	GST rate	ITC available?
Under-construction affordable residential	1 percent	No
Under-construction non-affordable residential	5 percent	No
Under-construction commercial	12 percent	Yes
Ready-to-move-in property with OC	Nil (out of GST scope)	N/A
Land only, no construction	Nil (out of GST scope)	N/A

These rates apply on the value of the property, not on the total including stamp duty and registration. Stamp duty and registration are separate state levies, not part of GST.

What counts as 'affordable' residential

Under current rules, a residential unit qualifies as affordable when both of these are true:

• Carpet area is not more than 60 square metres in metros (Delhi NCR, Mumbai MMR, Kolkata, Chennai, Hyderabad, Bengaluru) or 90 square metres in non-metros.
• The gross value of the property is not more than 45 lakh rupees.

If either threshold is crossed, the unit is non-affordable and the 5 percent rate applies. Confirm the current definition and thresholds with your tax advisor; the government has updated these before and may again.

The Input Tax Credit (ITC) trade-off

The 2019 reset made a specific bargain: rates are lower (1 or 5 percent instead of the earlier 8 or 12 percent effective), but the builder cannot claim Input Tax Credit on inputs (cement, steel, contractors) for residential projects at these rates. Commercial under-construction still allows ITC at 12 percent.

For a builder this is a pricing decision, not a compliance one. The GST rate you invoice is fixed by rule, but the impact of losing ITC on residential is priced into your base rate. That is one reason cost sheets for residential and commercial in the same project look very different.

When does GST stop applying? The OC test

GST applies to under-construction property. As soon as the Occupancy Certificate (or its equivalent, sometimes Building Use permission) has been issued and the transaction is for a fully constructed unit, the sale is out of GST scope. This is why the same tower can have units under GST (booked before OC) and units without GST (booked after OC).

The CRM must know the OC status of each project and default the cost sheet accordingly. Getting this wrong means either invoicing GST that is not due, or missing GST that is due, and both are audit issues.

How GST shows up on a cost sheet

A real cost sheet must show GST as a separate, clearly labelled line, not bundled into the base rate. That way the buyer can see what they are paying and it is transparent on the demand letter later. A representative structure:

• Base rate multiplied by carpet or saleable area.
• PLC, floor rise, and any premium adders.
• Sub-total before GST.
• GST at applicable rate, shown separately.
• Sub-total after GST.
• Stamp duty and registration guidance (state levies, shown separately).
• Total amount payable, and the payment schedule per CLP.

Our cost sheet automation guide walks through this structure in detail. When the cost sheet engine handles GST automatically based on project type and OC status, you avoid the classic errors: applying 5 percent to an affordable unit, or applying any GST to a ready-with-OC unit.

How GST shows up on a demand letter

A demand letter for a CLP milestone must split the demanded amount into base and GST components. Ambiguity here is the most common cause of buyer disputes. The letter should show:

• The milestone being demanded and the percentage applicable.
• The base amount computed on the unit's price.
• GST at the applicable rate, on the base amount.
• Total amount due and the payment reference details.

See our demand letter automation guide for how a CRM makes this deterministic per project and per milestone.

Common GST mistakes builders make on cost sheets and demands

• Applying non-affordable 5 percent GST to a unit that meets the affordable definition (or vice versa).
• Applying GST to a ready-with-OC transaction that is out of scope.
• Combining base and GST into a single line on the invoice, which causes buyer confusion and audit findings.
• Not updating the CRM when a project receives its OC, so new bookings continue to be invoiced with GST after they should be out of scope.
• Not showing GST split on the payment plan handed to a home loan bank, which delays disbursement.

Each of these is a records-and-defaults failure, not a construction failure. A real estate CRM that applies GST rules per project fixes them at source.

Ready-to-move-in vs under-construction: how it changes the sale

The GST difference (5 or 1 percent vs nil) makes ready-to-move-in property meaningfully more attractive from a pure GST perspective. Your sales pitch should reflect that. Practically:

• Cost sheets for ready inventory should say 'no GST applicable, sale of completed property with OC'.
• Payment plans for ready inventory are usually simpler, closer to a down-payment plan than a CLP.
• Home loans on ready property disburse faster; documentation flows differently.
• Marketing collateral for ready inventory can highlight the GST saving as a real number.

Our CLP explainer covers the payment side of this, and the booking and inventory guide covers how to keep ready and under-construction stock cleanly separated in the CRM.

Commercial under-construction: 12 percent with ITC

Commercial (office, retail, warehousing, coworking) under-construction is at 12 percent with ITC. That changes both the price mechanics and the buyer economics.

• Buyers who are GST-registered can typically claim ITC on the commercial purchase, so the effective cost is not 12 percent for them.
• Builders should keep clean records of ITC availed on inputs (cement, steel, contracting) for commercial parts of a mixed-use project.
• Cost sheets for commercial units should show the 12 percent line separately and note ITC availability for the buyer.

Edge cases in the affordable definition

The affordable definition looks simple on paper but has enough edge cases to warrant a section. Common questions that come up in practice:

• A unit with a carpet area of 59 square metres in Mumbai but a value of 46 lakh: it fails the value test even though the area qualifies. It is non-affordable at 5 percent.
• A unit in Pune (non-metro for the GST definition) with 92 square metres carpet and a value of 42 lakh: fails on area even though value qualifies. Non-affordable at 5 percent.
• A unit that qualifies as affordable at time of booking but changes hands later after OC: the resale is out of GST scope; the original booking's GST treatment stands.
• A society redevelopment where rehabilitated members receive units below the affordable value threshold: check the GST position of the rehabilitation component separately from the free-sale component.

In each edge case, the CRM's cost sheet engine should apply the rule you have configured for the project and unit, not an operator's memory. Confirm the specifics with your tax advisor before launch.

Cancellation, refund, and GST reversal

When an under-construction booking is cancelled, the GST treatment of the refund depends on the specifics: whether the cancellation happened before or after the invoice, whether GST was paid and remitted, and the payment plan status. A clean paper trail is essential. Practical points that come up often:

• If GST was collected and remitted for an instalment that is now being refunded, the builder needs to process the reversal correctly on the GST returns.
• The buyer refund calculation should show the base refund and the GST refund as separate lines, matching the original invoice structure.
• The CRM's cancellation workflow should generate a credit note that mirrors the original invoice, with GST split intact.
• Any cancellation charges retained by the builder need their own GST treatment based on the specifics.

Always confirm the specific treatment with your tax advisor before processing a refund. This is one area where a manual mistake becomes a filing error very quickly.

Home loans and GST timing

Home loan disbursements are usually released against certified milestones under a CLP. Each disbursement corresponds to a demand letter with the GST line clearly shown. Banks and DSAs use that split to size the disbursement, so a demand letter that bundles GST into the total will typically be rejected or delayed. Getting the format right at demand time is what keeps loan disbursement on schedule and the buyer's own stress low.

Joint development, area sharing, and composite contracts

A joint development agreement (JDA) between a landowner and a developer, where the landowner receives a share of built-up area or revenue, has its own GST treatment that has evolved through several clarifications. Composite supply questions (where the transaction bundles construction with land) can also arise. This is a specialised area; do not rely on general guidance. Get a qualified tax opinion before finalising the structure, and update the CRM's project setup to reflect it so cost sheets and demand letters use the correct rate throughout.

Interaction with stamp duty and registration

Stamp duty and registration are state levies, entirely separate from GST. A cost sheet should show them as guidance, clearly labelled as buyer-side statutory charges, not as builder revenue.

• Stamp duty rates vary by state and by property type; Maharashtra, Karnataka, and Gujarat each publish their own schedules.
• Some states offer stamp duty rebates for women buyers or for specific property categories.
• Registration charges are typically a percentage of the property value, again with state variation.

Because these are buyer-side and state-specific, they should be treated as guidance on the cost sheet with a disclaimer, and confirmed with the buyer's legal advisor.

How a real estate CRM keeps GST correct

The right defaults do most of the work. A well-set-up CRM:

• Stores the project's residential / commercial classification, affordable / non-affordable flag, and OC status.
• Applies the correct GST rate to the cost sheet based on those flags.
• Blocks a cost sheet from being issued if any of those flags are missing.
• Regenerates GST on demand letters at the current rate for each milestone.
• Alerts finance when a project's OC is recorded so new bookings are automatically switched out of GST scope.

See cost sheet generator and payment plans and collections for how Makanify implements these defaults.

Where to go from here

If your team currently generates cost sheets and demand letters manually with GST typed in by an assistant, that is the workflow to automate first. Our cost sheet automation guide and demand letter automation guide cover the mechanics. To see it working on your own project structure with your rates and GST configuration, book a free Makanify demo.

Quick FAQ for a first-time buyer

The most common buyer questions about GST on Indian real estate, answered short:

• Is GST included in the quoted price? Almost always no. GST is shown as a separate line on the cost sheet.
• Do I pay GST if I buy a ready flat with OC? No. Ready property with OC is out of GST scope.
• If I book an under-construction unit that receives OC before final possession, do I pay GST on the last instalment? Yes on the amounts collected while it was under-construction; the OC status change affects transactions after that date, not the past ones.
• Do I get any tax benefit for the GST paid? For residential property purchase, no. For commercial GST-registered buyers, ITC may be available.
• Is stamp duty part of GST? No, stamp duty and registration are separate state levies.

This article is a general explainer, not tax or legal advice. GST rates, definitions, and state levies are updated by the government periodically. Always confirm current rules with a qualified tax professional before finalising cost sheets or invoices.