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| GST-on-Constructed-Property:-When-Is-GST-Applicable-on-Sale-of-a-Flat,-House-or-Building? |
The question of whether GST is payable on the sale of a constructed property often creates confusion among buyers, sellers and builders. The simple answer is that GST treatment depends mainly on whether the property is still under construction or has already been completed, and, importantly, on when the consideration is received.
The basic framework is contained in Schedule II and Schedule III of the Central Goods and Services Tax Act, 2017 (CGST Act).
Sale of Land Is Outside GST
GST is not applicable to the sale of land. Entry 5 of Schedule III specifically provides that the sale of land is neither treated as a supply of goods nor a supply of services.
Therefore, when a person simply purchases or sells a plot of land, the transaction itself does not attract GST. The important point is to distinguish a genuine sale of land from a transaction involving construction or development services.
What About Construction of a Flat or Building?
The position changes when a flat, house, apartment, commercial unit or building is being constructed for sale.
Under Schedule II, paragraph 5(b) of the CGST Act, construction of a complex, building, civil structure or part thereof, including a building intended for sale to a buyer, is treated as a supply of services.
However, there is an important exception. Construction intended for sale is not treated as a taxable supply where the entire consideration has been received after the issuance of the completion certificate, where required, or after the property's first occupation, whichever is earlier.
This distinction is the key to understanding GST on constructed property.
Under-Construction Property
Suppose a buyer books a flat when construction is still going on and makes payments to the builder before completion. The transaction falls within the scope of construction service under Schedule II.
In such a situation, the sale is not treated simply as the sale of a completed building. Instead, the construction activity is considered a supply of service, and GST may be applicable according to the relevant provisions, notifications and applicable rate for the particular project.
This is why buyers of under-construction flats generally see GST included in the builder's demand or invoice.
Ready-to-Move-In or Completed Property
Now consider a different situation.
A building or flat has already received the required completion certificate, or it has already been occupied, whichever event occurs earlier. If the entire consideration is received after that point, the transaction falls outside the scope of taxable construction service under Schedule II.
In simple words, the sale of a completed property in these circumstances is not treated as a supply for GST purposes.
Schedule III specifically covers the sale of a building, subject to the condition contained in Schedule II, paragraph 5(b).
Why Is the Timing of Payment Important?
This is one of the most important aspects that buyers should understand.
It is not enough to simply say that the property is “ready to move in.” The timing of receipt of consideration and the date of completion certificate or first occupation can be important for determining GST treatment.
For example:
- Payment during construction: GST may be applicable because the construction activity is treated as a supply of service.
- Entire consideration received after completion certificate/first occupation, whichever is earlier: the transaction falls within the exclusion provided by the law.
- Sale of land: outside GST as per Schedule III.
- Sale of a completed building: generally outside GST where the conditions of Schedule II and Schedule III are satisfied.
Therefore, merely looking at the date of registration or sale deed may not always provide the complete GST answer.
What Is a Completion Certificate?
The CGST provisions also explain the meaning of “competent authority” for this purpose.
It generally refers to the Government or an authority authorised to issue a completion certificate under the applicable law. Where such a certificate is not required from a government authority, the provision also recognises specified professionals, such as a registered architect, chartered engineer or licensed surveyor, in the circumstances prescribed by law.
This becomes particularly relevant where local building regulations do not require a formal completion certificate from a government authority.
A Simple Example
Suppose a builder agrees to sell a flat for ₹60 lakh.
Case 1 – Under construction:
The buyer pays instalments while construction is in progress. The transaction is treated as construction service and GST may apply according to the applicable provisions.
Case 2 – Completed property:
The property has already reached the relevant completion/occupation stage, and the entire consideration is received after that point. The sale of the completed building is generally outside the scope of GST.
This simple example shows why the stage of construction and timing of consideration are more important than simply calling a property “new” or “old.”
Conclusion
GST on constructed property is not determined merely by the fact that money is being paid for a flat, house or building. The law makes a clear distinction between construction intended for sale before completion and sale of a completed building.
The practical rule is straightforward: under-construction property can attract GST because construction is treated as a supply of service, whereas the sale of a completed building, subject to the statutory conditions, is outside the scope of GST. Sale of land is also specifically excluded from the definition of supply.
Before deciding whether GST should be charged on a particular property transaction, the agreement, payment dates, completion certificate/occupation status and applicable GST notifications should be examined together.
Reference: CBIC – CGST Act, Schedule III