Introduction
Buying an under construction (U/C) flat in India comes with its own set of financial expectations, especially when it comes to GST. The introduction of a streamlined 1–5% GST slab has changed how buyers plan budgets and developers price projects. This guide dives into the GST under construction rules, explains how tax on U/C flats works, and gives you insights to make smart decisions in simple, clear English.
1. What Is GST on Under Construction Properties?
Unlike ready-to-move-in homes, U/C flats are viewed as a supply of services, so GST applies on construction value—not land. This GST rates as follows (without Input Tax Credit):
- 1% for affordable housing – flats up to ₹45 lakh and 60 m² (metros) / 90 m² (non-metros)
- 5% for non-affordable residential properties
(Commercial U/C properties attract 12%–18%, but this guide focuses on residential)
2. Why GST Rates Matter
- Lowers upfront tax burden: The current rates (1%/5%) are significantly lower than the earlier 12% slab.
- No ITC for buyers: You can’t claim input tax credit, meaning you bear the full GST hit.
- Land is GST-free: A third of the property’s value is assumed land (exempt), so GST applies only to two-thirds of the total price.
3. How to Calculate GST on Your Flat
GST Amount = (Total Property Price × 2/3) × GST Rate
Example (Non-Affordable Flat priced at ₹60 lakhs):
- Taxable value: ₹60 L × 2/3 = ₹40 L
- GST @5% = ₹2 L
- Total cost = ₹60 L + ₹2 L = ₹62 L
Example (Affordable Flat priced at ₹42 L):
- Taxable value: ₹28 L * 1% = ₹28,000
- Total cost = ₹42 L + ₹28,000 = ₹42.28 L
4. GST vs Pre-GST: What’s Changed?
| Before 2019 | After 2019 |
| 12%/8% GST with ITC | 5% (non-affordable), 1% (affordable) without ITC |
| Multiple taxes applied on construction inputs | One rate including prior taxes for clarity |
This simplifies pricing and avoids tax cascading.
5. Impact on Buyers & Developers
Buyers:
- Pay a clear percentage of construction cost upfront
- Avoid surprises from hidden VAT or service tax
- Save GST by choosing ready-to-move-in flats—no GST applies on such homes
Developers:
- Benefit: Claim ITC on construction costs—but may not pass savings to buyers
- Must decide between charging ITC-inclusive GST (12%) or choosing lower slab without ITC (5%)
6. Key Buyer Takeaways
- Prefer ready-to-move-in — it bypasses GST entirely.
- Check project classification — qualifies for affordable rates?
- Understand cost breakup — ensure land and construction values are clear.
- Developer’s ITC policy matters — confirm whether savings are passed on.
- Avoid double tax hits — GST only applies once on U/C flats.
7. Real-Life Cost Scenario
In Mumbai, a 1,000 sq ft U/C flat at ₹10,000/sq ft (₹1 Cr):
- 2/3 value = ₹66.7 L; GST = ₹3.335 L at 5%
- Compared to previous 12% slab: ₹8 L
You save nearly ₹4.7 L in GST alone.
8. Common GST Misunderstandings
- ITC for buyers? No—you bear the GST burden.
- GST on land? No—only construction is taxed.
- GST on resale homes? No GST if you get possession certificate.
9. Final Advice for Homebuyers
- Opt for affordable housing to enjoy the 1% rate.
- Prefer ready-to-move-in properties to dodge GST entirely.
- Ask developers for a tax break-down before booking.
- Confirm whether the project is GST-compliant and if ITC benefits are shared.
Conclusion
GST implementation has brought much-needed clarity to the GST under construction space. Today, buyers pay only 1–5% GST (with no ITC) on two-thirds of construction values. Choosing correctly—affordable housing or ready-flat—can lead to substantial savings. Stay informed, examine terms carefully, and take control of your home-buying decision.
Source : fulinspace.com