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GST on Sale of Land: Understanding the Applicability and Rates

 

The real estate sector in India is subject to various activities that fall under the ambit of Goods and Services Tax (GST). The implementation of GST aimed to streamline and rationalize the indirect tax system, ensuring a consistent market throughout the nation. In this article, we will explore the applicability of GST on the sale of land and the current GST rates on real estate in India.

Table of Contents

  1. GST on Sale of Land
  2. GST on Sale of Land after Development
  3. GST on Sale of Residential Apartments or Homes
  4. Affordable Residential Apartments
  5. GST Rates on Residential Properties
  6. GST Rate on Construction of Commercial Apartments
  7. GST Exemptions on Real Estate
  8. Current Rates of GST on Sale of Real Estate
  9. Impact on Registration Charges and Stamp Duty
  10. Conclusion

GST on Sale of Land

According to Schedule III of the CGST Act, the sale of land is neither considered a sale of goods nor a supply of services. Since land is categorized as an immovable property, the sale of land solely attracts stamp duty and not GST. Therefore, GST does not apply to the sale of land.

"The sale of land is not subject to GST as it is neither considered a sale of goods nor a supply of services."

GST on Sale of Land after Development

Under GST, the value of supply is determined by the price charged by the seller to the buyer for the sale of goods or services. As land is an immovable property, no GST is applicable on its sale. However, circular no. 177/09/2022-TRU clarifies that the sale of land after levelling, laying down of drainage lines, etc., is considered a sale of land and does not attract GST. It is important to note that any service provided for the development of land, such as levelling and laying of drainage lines, will attract GST at the applicable rate for such services.

"The sale of land after development activities such as levelling and laying of drainage lines is considered a sale of land and does not attract GST. However, services provided for land development are subject to GST."

GST on Sale of Residential Apartments or Homes

For the levy of GST, there must be an underlying supply of goods or services, or both, for a consideration in the course or furtherance of business. As a result, GST is applicable only on under-construction buildings, flats, and apartments, including commercial properties such as shops, godowns, and offices. However, GST does not apply to the sale or transfer of property after the issuance of a completion certificate (CC) or after its first occupation.

The government has categorized residential properties as affordable and non-affordable for the purpose of GST levy. Residential properties that do not meet the criteria for affordable residential apartments are considered non-affordable residential apartments and are taxable accordingly.

"GST is applicable only to under-construction residential apartments and commercial properties. Sale or transfer of property after the issuance of a completion certificate or after its first occupation is exempt from GST. Affordable residential apartments are taxed differently from non-affordable residential apartments."

Affordable Residential Apartments

An affordable residential apartment is defined as one in which the carpet area is up to 60 square meters for metropolitan cities, up to 90 square meters for cities and towns other than metropolitan cities, and the gross amount charged by the builder is not more than Rs. 45 lakh. Metropolitan cities include Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, and Mumbai.

GST on affordable residential apartments is levied at a rate of 1% on the property value excluding land. Non-affordable residential apartments are subject to GST at a rate of 5% on the property value excluding land. It is important to note that these rates are after deducting one-third of the value of the land.

"Affordable residential apartments are defined based on carpet area and the gross amount charged by the builder. GST on affordable residential apartments is 1%, while non-affordable residential apartments are taxed at 5%."

GST Rates on Residential Properties

The current rates of GST on the sale of residential properties in India are as follows:

Type of Property

Status

GST Rate

ITC Available

Under Construction

Residential properties

1% (after deducting value of land)

No

Under Construction

Commercial properties in Residential Real Estate Project (RREP)

7.5% (effective rate 5% after deducting land value)

No

Under Construction

Other Commercial Properties

18% (effective rate 12% after deducting land value)

Yes

Completed or Ready-to-Move

Commercial and Residential Properties

No GST if CC is issued before the sale

No

Land

Purchase or Sale

No GST as it is neither goods nor services

No

"GST rates vary based on the type and status of the property. Under-construction residential properties attract GST at a rate of 1% or 5% depending on affordability criteria. Commercial properties in residential real estate projects are taxed at 7.5%, while other commercial properties are taxed at 18%. Completed or ready-to-move properties are exempt from GST, and the purchase or sale of land is also not subject to GST."

GST Rate on Construction of Commercial Apartments

According to Para 5(b) of Schedule II of the CGST Act, the construction of a complex, building, civil structure, or part thereof intended for sale to a buyer, except where the entire consideration has been received after the issuance of a completion certificate or after its first occupation, is considered a supply of service.

The GST rate applicable to the construction of commercial apartments, such as shops, godowns, and offices, in a real estate project depends on whether it is part of a residential real estate project (RREP) or not. The rates are as follows:

  • Commercial Apartments in Residential Real Estate Project (RREP): 5% without Input Tax Credit (ITC) on the total consideration.
  • Commercial Apartments in Real Estate Project (REP) other than RREP: 12% with ITC on the total consideration.

"The GST rate for the construction of commercial apartments in a residential real estate project is 5% without ITC, while commercial apartments in other real estate projects are taxed at 12% with ITC."

GST Exemptions on Real Estate

Certain transactions related to real estate are exempt from GST. Under Schedule III of the GST Act, ready-to-move-in properties, resale properties, and the purchase and sale of land are not classified as goods or services. As a result, these transactions do not attract GST.

"Ready-to-move-in properties, resale properties, and the purchase and sale of land are exempt from GST as they are not considered goods or services."

Current Rates of GST on Sale of Real Estate

To summarize, here are the current rates of GST on the sale of real estate in India:

  • Residential properties under construction: 1% or 5% depending on affordability criteria (after deducting the value of land)
  • Commercial properties in a Residential Real Estate Project (RREP) under construction: 7.5% (effective rate 5% after deducting land value)
  • Other Commercial properties under construction: 18% (effective rate 12% after deducting land value)
  • Completed or ready-to-move properties: No GST if the completion certificate (CC) is issued before the sale
  • Purchase or sale of land: No GST as it is neither goods nor services

"The current GST rates on the sale of real estate in India vary based on the type and status of the property, with different rates for residential and commercial properties under construction, and exemptions for completed properties and land transactions."

Impact on Registration Charges and Stamp Duty

Under the real estate GST scheme, the registration and stamp duty fees remain unaffected. The registration fee is typically 1% of the property value, and the stamp duty is assessed at a rate between 5% and 10%. However, GST is not applicable on apartment registration, providing relief to buyers from paying GST on this particular charge.

"Registration charges and stamp duty fees are separate from GST and remain unaffected. Buyers are exempt from paying GST on apartment registration."

Conclusion

Understanding the applicability and rates of GST on the sale of real estate is crucial for both buyers and sellers in India. While the sale of land itself does not attract GST, the sale of land after development and the sale of residential and commercial properties under construction are subject to GST. It is important to consult with professionals or refer to official government circulars for accurate and up-to-date information on GST in the real estate sector.

"Being aware of the GST applicability and rates on the sale of real estate is essential for both buyers and sellers. Consulting experts or referring to official circulars can provide accurate information on GST in the real estate sector."

Remember to always stay informed about the latest updates and changes in GST regulations to ensure compliance and make well-informed financial decisions in the real estate sector.

 

author

The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

Frequently Asked Questions

In India, there are four different types of GST taxes:


1. Integrated Goods and Services Tax (IGST)
2. State Goods and Services Tax (SGST)
3. Central Goods and Services Tax (CGST)
4. Union Territory Goods and Services Tax (UTGST)

Under the GST system in India, all goods and services are categorized using the HSN code system or SAC code system. Goods are classified under the HSN Code, while services are classified under the SAC Code. GST rates are determined based on these codes and are divided into five slabs: NIL, 5%, 12%, 18%, and 28%.

The GST council has categorized more than 1300 goods and 500 services into four tax slabs of 5%, 12%, 18%, and 28% under the GST system.

In the GST regime, the buyer is responsible for paying the GST on under-construction properties. The developer or builder collects the tax amount from the buyer and then remits it to the government.

The landowner must pay an 18% Goods and Services Tax (GST) on a joint development agreement.

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