GST on Real Estate Transactions — The 1% / 5% Rate Structure

GST on real estate transactions changed fundamentally in April 2019 when CBIC notified the new rate structure. The change moved most residential construction to a low rate (1% / 5%) with NO Input Tax Credit, reversing the earlier 12% / 18% with ITC structure. The economics, the documentation and the compliance pipeline all shifted. This guide explains the rules as they apply in 2026 — what rates, what qualifies, what ITC you can and cannot claim, and how the rules interact with JDA, TDR and commercial property.

The current rate structure

The 'effective rate' is after deducting one-third of the consideration treated as deemed land value (taxed at NIL). So a buyer signing a ₹1 crore agreement actually pays GST on ₹66.67 lakh at the headline rate.

What qualifies as affordable housing

Affordable housing for the 1% GST rate has TWO conditions, both of which must be satisfied (Notification 11/2017-CT(R) as amended):

• Carpet area condition — up to 60 sqm in metropolitan cities (Delhi NCR, Mumbai MMR, Chennai, Bengaluru, Kolkata, Hyderabad) or up to 90 sqm in non-metro cities (including Ahmedabad).
• Value condition — gross amount charged for the unit is up to ₹45 lakh.

Both conditions per unit. Cross either threshold by even ₹1 or 1 sqm and the unit drops out of affordable housing and into the 5% bracket. The single biggest decision a Gujarat builder makes is keeping units below ₹45 lakh + 90 sqm carpet area — designing around the threshold is genuinely the difference between competitive pricing and being shut out.

Under-construction vs ready-to-move-in

GST applies ONLY to under-construction property sales. Ready-to-move-in property — meaning sold after issuance of completion certificate (CC) or first occupation, whichever is earlier — has NO GST applicable.

• Under-construction sale (no CC issued) → GST at 1%/5% (residential) or 12% (commercial REP).
• Ready-to-move-in sale (after CC) → No GST. Treated as sale of immovable property.
• Sale of land alone (no construction) → No GST.

This creates a strategic question for buyers: pay GST on under-construction and lock in lower price, or wait for ready-to-move and pay no GST but higher price. The arithmetic usually favours under-construction for residential — but the buyer carries delay risk.

The big ITC restriction

The 1% and 5% residential rates come with one major catch — NO Input Tax Credit can be claimed by the builder on inputs and input services used in construction. Cement (28% GST), steel (18% GST), labour contracts (18%), brokerage, professional fees — all of that GST is a cost, not a credit.

• ITC reversal applies to existing inventory at the rate-change date if a builder elected the new regime mid-project.
• 80% rule — builders in the new scheme must source 80% of inputs and input services (other than TDR / FSI / land) from registered suppliers. Shortfall attracts reverse charge at 18%.
• Cement specifically — 100% must be from registered suppliers, irrespective of the 80% rule on other inputs.

TDR and JDA implications

Transferable Development Rights (TDR), Floor Space Index (FSI), and long-term lease (≥30 years) premium attract 18% GST in the hands of the recipient builder when used in residential project construction. Notification 04/2019-CT(R) provides a mechanism where the GST on TDR is calculated based on the ratio of carpet area sold to total carpet area, paid through reverse charge.

• JDA structure — landowner gives land/development rights, builder gives back constructed apartments. GST treatment turns on whether landowner is registered, whether they take constructed unit before or after CC.
• Section 9(3) reverse charge applies on TDR / FSI / lease premium — builder pays GST instead of landowner.
• Date of supply for TDR — date of conveyance of constructed property to landowner OR date of issuance of CC, whichever earlier.

Commercial real estate

• Standalone commercial REP (Real Estate Project) — 12% GST WITH ITC available.
• Mixed-use RREP (Residential Real Estate Project) with commercial component ≤15% of total carpet area — entire project at residential rates (1%/5% without ITC).
• Office space, shops, malls — all commercial under standalone REP.
• Sale of commercial property after CC — no GST (same as residential).
• Rent / lease of commercial property → 18% GST in the hands of the lessor on the lease rent.

Computation examples

Example 1 — Affordable housing flat in Ahmedabad. Carpet area 75 sqm, total consideration ₹40 lakh.

• Qualifies as affordable (75 < 90 sqm, ₹40L < ₹45L).
• Deemed land value = ₹40L / 3 = ₹13.33L (no GST).
• Taxable value = ₹40L - ₹13.33L = ₹26.67L.
• GST at 1% = ₹26,667.
• Total payable by buyer = ₹40L + ₹26,667 = ₹40,26,667.

Example 2 — Non-affordable residential flat. Carpet area 110 sqm, total consideration ₹80 lakh.

• Falls outside affordable (110 > 90 sqm).
• Deemed land value = ₹80L / 3 = ₹26.67L.
• Taxable value = ₹53.33L.
• GST at 5% = ₹2,66,667.
• Total payable = ₹82,66,667.

Promoter options for ongoing projects

For projects that were already underway when the new GST regime came into effect, promoters had a one-time choice — continue under the old regime (12% with ITC) for the remaining inventory, or migrate to the new regime (1%/5% without ITC). Most opted for the new regime to compete with new launches on price. Where an ongoing project chose the new regime:

• Existing input tax credit (already claimed on inputs purchased before the rate change) must be reversed.
• Future inputs do not generate any new ITC.
• Pricing competitiveness restored at the cost of margin compression on the unsold inventory.

Common mistakes

• Selling at the 1% rate without checking BOTH affordable conditions (carpet area + value).
• Claiming ITC under the 1%/5% scheme.
• Not paying GST on TDR / FSI via reverse charge.
• Treating completion-certified inventory as taxable under GST.
• Sourcing cement from unregistered suppliers (special 100% rule).
• Selling commercial space within an RREP at 12% (residential RREP cap applies — should be 5%).
• Missing the 80%-input-from-registered-supplier compliance — reverse charge shortfall at 18%.