GST on real estate: the complete developer position
Land, labour and time. Every real estate dispute is one of those three, disguised as something else.
Construction of a complex or building intended for sale is a supply of service where consideration is received before the completion certificate. Since 1 April 2019 the principal scheme is one percent for affordable residential apartments and five percent for other residential apartments, in each case without input tax credit and subject to the condition that eighty percent of inputs and input services be procured from registered persons, with commercial apartments at twelve percent with credit. Sale after completion is outside GST. The value excludes land, with a deemed one third deduction read down as optional by the Gujarat High Court in Munjaal Manishbhai Bhatt.
The three questions on every project
Is there a supply at all? A sale of land is outside GST under Schedule III, and a sale of a completed building after the completion certificate or first occupation is outside the levy. Consideration received before completion is taxable as a construction service.
Which rate applies? The answer depends on the project's classification as a residential real estate project, the apartment's classification as affordable or otherwise, the commercial component's share, and the date on which the project commenced, since the pre 2019 scheme with credit continued as a one time option for ongoing projects.
What is the value? Consideration less the value of land, with the deemed one third deduction available and, after Munjaal Manishbhai Bhatt, the actual land value deductible where ascertainable.
The eighty percent procurement condition
Under the concessional scheme the developer must procure at least eighty percent of the value of inputs and input services, other than specified exclusions, from registered persons.
Where the procurement falls short, the developer must pay tax on the shortfall under reverse charge at the prescribed rate, and on cement procured from an unregistered person tax is payable in the month of procurement irrespective of the eighty percent computation.
The computation is annual and project wise, and the working papers are what the department examines. Land value, salaries, and specified exclusions are outside the computation.
This condition is the single most commonly failed condition of the concessional scheme, because small site level procurement from unregistered vendors is invisible in the head office ledger.
Credit, and the transitional apportionment
Under the concessional scheme credit is not available, and credit availed must be reversed. For projects that transitioned in April 2019, the transitional apportionment prescribed in the annexures to the rate notification governs, and errors in that computation are still being adjudicated.
For commercial projects at twelve percent, credit is available, and Section 17(5)(c) and (d) do not block credit where the works contract service is an input for the further supply of works contract service or where the construction is for further supply rather than on own account.
For a developer letting out rather than selling, Safari Retreats and the retrospective amendment to Section 17(5)(d) govern, and the plant and machinery bifurcation is the live argument.
Rule 42 apportionment applies where a project has both taxable and exempt or non taxable elements, including sale after completion.
The recurring departmental findings
Shortfall in the eighty percent procurement condition, with tax on the shortfall and on cement.
Transitional credit apportionment errors for projects that transitioned in 2019.
Preferential location charges, floor rise, club charges and other collections treated as part of the construction service rather than as separately taxable, or the reverse.
Time of supply on receipt of advances and on the issue of allotment letters and demand letters.
Development rights, joint development arrangements and the exemption conditions on residential projects.
Cancellation of bookings and the credit note and refund mechanism where the tax has already been paid.
Exhibit — The project file the department will ask for
| Document | Why it matters | Where it fails |
|---|---|---|
| Project registration and approvals | Determines the scheme and the affordable classification | Carpet area and value thresholds not evidenced |
| Completion certificate or first occupation evidence | Fixes the boundary of the levy | Date not documented, so post completion sales are taxed |
| Eighty percent procurement working | Condition of the concessional rate | Site level unregistered procurement not captured |
| Transitional apportionment working | Governs credit for projects continuing from 2019 | Prepared once and never reconciled |
| Demand letter and collection schedule | Time of supply | Advances taxed in the wrong period |
| Land value evidence | Value of the taxable supply | No valuation basis where actual land value is claimed |
In real estate the assessment is a project audit. Build the project file as the project runs.
Authorities relied on
The deemed one third land deduction is read down as optional; where the actual value of land is ascertainable it must be deducted.
Credit restrictions in Section 17(5) are valid; plant or machinery in clause (d) was distinct from the defined expression, later amended retrospectively.
What to do on Monday
Maintain the eighty percent procurement working monthly, capturing site level procurement, not annually at audit.
Document the completion certificate or first occupation date for every tower, with evidence.
Reconcile demand letters and collections to the time of supply monthly.
Keep the transitional apportionment working live for projects continuing from 2019.
Build the land valuation file before claiming actual land value on any project.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Is the sale of a completed flat taxable?
No. Where the entire consideration is received after the completion certificate or first occupation, the transaction is outside GST.
Can a developer opt back into the credit scheme?
The option for ongoing projects was a one time election exercised in 2019. New projects are governed by the concessional scheme without credit.
What happens if we miss the eighty percent condition?
Tax on the shortfall under reverse charge at the prescribed rate, and tax on cement procured from unregistered persons in the month of procurement.
Is the one third land deduction mandatory?
It is optional following Munjaal Manishbhai Bhatt where the actual land value is ascertainable. Build the valuation file before claiming actual value.
How are cancellations handled?
Through the credit note mechanism where the time limit permits, and by a refund claim where it does not. Track the cancellation register.
In this cluster
- Munjaal Manishbhai Bhatt: the one third land deduction is optional, not mandatory
- Joint development agreements: who pays, when, and on what value
- Transfer of development rights: the exemption and its conditions
- Works contracts under GST: classification, rate and the credit position
- Government contracts, escalation clauses and rate changes
- ITC restriction under Section 17(5)(c) and (d) for construction
- Preferential location charges, club charges and society transfer fees
- Affordable housing at one percent: the conditions that decide eligibility
- Redevelopment, slum rehabilitation and the value of free flats
- Leasing of land and buildings: the exemption boundary
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.