GST on Real Estate Transactions: The 2026 Guide for Buyers and Developers

## Why GST on Real Estate Remains Contested Few areas of the Goods and Services Tax framework generate as much litigation and confusion as real estate. The GST Council has issued multiple clarifications, the Authority for Advance Rulings has delivered contradictory decisions across states, and the treatment of land — constitutionally outside the GST net — continues to create valuation disputes. For buyers, developers, and corporate tenants in Delhi NCR, understanding the applicable rate and input tax credit entitlement before a transaction is signed can mean the difference of several crore rupees. ## The Basic Rate Structure ### Under-Construction Residential Property Under-construction residential apartments carry GST at **5% (without input tax credit)** for units other than affordable housing, and **1% (without ITC)** for affordable housing units. The affordable housing threshold is a carpet area of up to 60 square metres in metropolitan cities (which includes Delhi NCR) with a gross consideration not exceeding Rs. 45 lakhs. The critical point is that GST applies only until the Completion Certificate or the First Occupation Certificate is issued, whichever is earlier. Once either document is issued, the unit becomes "ready to move in" and the transaction is treated as a transfer of immovable property — outside the supply of goods and services under the CGST Act, 2017. No GST is payable on the purchase of a ready possession unit. ### Commercial Property GST on commercial property under construction is levied at **12% with ITC** for the developer. However, since the 2019 rate revision, the default rate for residential is 5% without ITC. For commercial projects (shops, offices, retail), the 12% with ITC rate continues to apply on under-construction supply. For corporate buyers purchasing office space in under-construction towers in Gurgaon's Cyber City or Noida's Sector 62 tech corridor, the ITC entitlement is critical — it means the 12% GST paid at the time of purchase can be set off against the buyer's output GST liability, substantially reducing the effective cost. ### Ready-to-Move Commercial Property Leasing and renting of commercial property is a taxable service under Section 7 of the CGST Act, read with Schedule II. Commercial lease rentals attract GST at **18%**, and this is one of the most significant costs for corporate tenants across Delhi NCR office markets. The landlord, if registered, collects GST and deposits it; the tenant claims ITC on the GST paid, reducing net cost. Residential property rented to a registered business for commercial use (such as a director's residence being billed to the company) is also taxable at 18% under the reverse charge mechanism when the tenant is a registered person — a provision that has caught many companies off guard. ## The Treatment of Land: The One-Third Abatement Land itself is not a "supply" under GST — Schedule III of the CGST Act, 2017 specifically excludes sale of land. However, when a developer sells an under-construction apartment, the consideration includes both the construction services component and the value of the underlying land. To avoid valuing each component separately, the GST Rules provide a standard deduction: **one-third of the total consideration is deemed to be the value of land** and is deducted before applying the GST rate. This means on a flat priced at Rs. 1.5 crore: - Deemed land value: Rs. 50 lakhs (excluded from GST) - Taxable construction value: Rs. 1 crore - GST at 5% (non-affordable): Rs. 5 lakhs Disputes arise where the actual land cost significantly exceeds one-third of the consideration — particularly in premium locations in South Delhi or Golf Course Road, Gurgaon. Developers and buyers have sought advance rulings arguing for a higher land deduction, but most Authorities for Advance Rulings have declined to deviate from the one-third formula. ## Transferable Development Rights (TDR) and Floor Space Index Premiums The GST treatment of Transferable Development Rights and Floor Space Index (FSI) premiums is one of the most contested areas in real estate GST. The GST Council, in its 37th meeting, clarified that: - TDR/FSI supplied before the Completion Certificate is taxable at **18%** under the developer's reverse charge obligation - TDR/FSI supplied after the Completion Certificate is outside GST (treated as a sale of immovable property) - Long-term lease of land (30 years or more) is taxable at 18% on the upfront premium For developers in Delhi NCR who acquire TDR from landowners under joint development agreements, the timing of the transaction relative to project completion has significant GST implications. A JDA entered into before construction commences and structured correctly can defer or reduce TDR-related GST liability. The Supreme Court's decision in Union of India v. Mohit Minerals (2022) regarding the GST Council's binding nature on states also has indirect relevance here, as it limits state-level divergence on real estate GST positions. ## Input Tax Credit: When Developers Can and Cannot Claim ### The Block on Residential ITC Section 17(5) of the CGST Act, 2017 blocks ITC on goods and services used in the construction of an immovable property for the developer's own use or for supply in the residential segment at the 5% rate (where developers have opted for the composition scheme variant). This is a significant restriction: developers selling residential apartments at 5% cannot claim ITC on construction inputs (steel, cement, architect fees, contractor charges), which is why the rate effectively becomes a cost. ### Commercial Segment ITC For commercial projects, developers charging 12% GST can claim ITC on inputs used in construction. This improves margins significantly but requires rigorous GST compliance — separate accounts, project-wise attribution, and reconciliation with GSTR-2B. ### Corporate Tenants and ITC Corporate tenants paying 18% GST on commercial lease rentals can claim full ITC, subject to the general restriction that ITC cannot be claimed on expenses that are blocked under Section 17(5). The rental payments are not blocked, and large occupiers in DLF Cyber City or Noida Special Economic Zone corridors routinely recover significant ITC from commercial rent payments. ## Joint Development Agreements: A Structural Risk Area JDAs between landowners and developers create a deemed supply of construction services at the point of transfer of development rights. Under Notification No. 4/2018-CT(Rate), the developer is liable to pay GST under reverse charge on the TDR value attributed to the landowner's share. The valuation of TDR — particularly when the landowner receives flats rather than cash — requires application of the residual value method or comparison with similar transactions, and has been the subject of multiple advance rulings in Delhi, Haryana, and UP. Getting the valuation wrong means either underpaying GST (with interest and penalty exposure) or overpaying (with a blocked ITC claim on the excess). ## Practical Compliance Steps **For developers:** - Segregate residential and commercial projects in the accounts and in GST registrations where feasible - Maintain project-wise ITC registers for commercial projects - Audit all JDA structures before filing — the timing of TDR taxation and the method of valuation must be reviewed annually - Ensure GST is collected on under-construction sales before Completion Certificate; document the date of CC issuance carefully **For corporate buyers and tenants:** - Confirm under-construction or ready status before executing any sale agreement - For commercial purchases with ITC entitlement, obtain the developer's GST registration and project HSN details - For lease arrangements, ensure the landlord is GST-registered and that invoices contain GSTIN, HSN/SAC code, and rate — failure to obtain a valid invoice can result in ITC reversal in a GST audit Corpus Juris Legal advises on GST structuring for real estate transactions, JDA documentation, advance ruling applications before the Authority for Advance Rulings (AAR) Delhi, and representation before GST Appellate Authorities and the GST Appellate Tribunal. Our tax and real estate teams work jointly on transactions where the two areas intersect.