New GST Rules and Their Impact on Property Buyers and Developers

By /

Introduction

The new GST rules have been implemented to streamline the taxation system and reduce the complexity of property transactions. These changes may affect property buyers and developers in terms of increased compliance requirements and potential changes in pricing structures. Property buyers may need to factor in additional costs due to changes in GST (Goods and Services Tax) rates or regulations. We are explaining new GST rules and their impact on property buyers and developers.

New GST Rules and Their Impact on Property Buyers and Developers

Table of Contents

Overview of New GST Rules in India and Its Relevance to Real Estate

Before GST, the real estate sector was subject to a complex web of taxes, including Value Added Tax (VAT), service tax, excise duty, and various state-level taxes. This multiplicity often led to increased costs for both developers and buyers.

The introduction of GST replaced these with a single tax, simplifying the taxation process. Under the GST regime, under-construction properties are taxed, while completed properties with a completion certificate are exempt. This shift aimed to reduce the cascading effect of taxes and bring more clarity to property transactions.

Key Changes in GST Rules for 2024 and Beyond

In 2024, several updates were introduced to the GST framework affecting the real estate sector:

  • Revised GST Rates for Commercial Properties: The GST rate for under-construction commercial properties was reduced from 18% to 15%, aiming to boost investment in the commercial real estate sector.
  • Rationalization of Input Tax Credit (ITC) Provisions: New provisions were introduced to streamline the ITC claims process. Developers can now claim ITC more efficiently, provided they maintain proper documentation and meet specific compliance requirements. This change is expected to reduce construction costs and benefit both developers and buyers.
  • Introduction of E-Invoicing for Real Estate Transactions: E-invoicing was expanded to include real estate transactions. All transactions related to the sale of under-construction properties must now be reported through the e-invoicing system, enhancing transparency and compliance.

Impact of GST on Property Prices: What Buyers Can Expect

The implementation of GST has had mixed effects on property prices:

  • Under-Construction Properties: Initially, under-construction properties were taxed at 12% with the benefit of ITC. Later, the rate was reduced to 5% for residential properties and 1% for affordable housing, but without the benefit of ITC. This reduction aimed to make under-construction properties more attractive to buyers.
  • Completed Properties: Completed properties with a completion certificate are exempt from GST, which can make them more appealing to buyers looking to avoid additional taxes.

GST on Residential vs Commercial Real Estate

The GST implications differ between residential and commercial properties:

  • Residential Properties: Under-construction residential properties are taxed at 5%, while affordable housing projects enjoy a reduced rate of 1%. Completed residential properties are exempt from GST.
  • Commercial Properties: Under-construction commercial properties were initially taxed at 18%, but this rate was reduced to 15% in 2024 to encourage investment in the sector.

New Tax Rates on Under-Construction Properties

As of 2024, the GST rates for under-construction properties are as follows:

  • Residential Properties: 5% without ITC.
  • Affordable Housing: 1% without ITC.
  • Commercial Properties: 15% with ITC.

These adjustments aim to stimulate growth in the real estate sector by making properties more affordable for buyers and encouraging developers to undertake new projects.

Impact of New GST on Property Developers and Builders

Under the previous tax regime, developers faced multiple taxes such as Value Added Tax (VAT), service tax, excise duty, and various state-level taxes, with limited opportunities to claim input tax credits (ITC). The introduction of GST streamlined these into a single tax system, allowing developers to avail ITC on inputs like construction materials and services. This change aimed to reduce construction costs and improve profit margins.

Overall, the implementation of GST has helped property developers and builders by simplifying the tax structure and providing more opportunities for tax credits. This has ultimately led to increased efficiency in operations and a more competitive market for developers. Additionally, the transparency and uniformity brought about by GST have also increased investor confidence in the real estate sector. This has resulted in a boost in investments and overall growth in the industry.

Input Tax Credit (ITC) Changes and Their Effect on Developers

Initially, developers could claim ITC on GST paid for inputs, which helped offset the tax liability on output services. However, with the GST rate revision in April 2019, rates to 5% for non-affordable housing and 1% for affordable housing. Developers are no longer permitted to claim ITC under the new rates. This change has led to increased construction costs, as developers cannot offset the GST paid on inputs, potentially affecting pricing strategies and profit margins.

GST on Affordable Housing: Impact on Homebuyers and Developers

The GST rate for affordable housing projects is set at 1% without ITC. This reduced rate aims to make housing more accessible to lower and middle-income groups. For developers, the lower GST rate can attract more buyers. The inability to claim ITC may lead to higher input costs, which could impact overall project profitability.

Homebuyers stand to benefit from the reduced GST rate as it may result in lower property prices, making homeownership more achievable. However, developers may need to strategize and find ways to mitigate the potential increase in input costs to maintain profitability in affordable housing projects. Overall, the reduced GST rate without ITC may lead to a more competitive market for affordable housing projects. Developers may need to focus on cost-saving measures and efficient project management to offset the impact of higher input costs.

GST on Rent and Lease Agreements in Real Estate

GST implications for rental and lease agreements vary based on the property’s usage:

  • Residential Properties: Renting of residential properties for personal use is exempt from GST. However, if a residential property is rented for commercial purposes, GST is applicable.
  • Commercial Properties: Leasing or renting commercial properties attracts GST at 18%. This tax applies to the rental income earned from such properties, impacting both lessors and lessees.

How GST Eases or Complicates Real Estate Transactions?

Simplifications:

  • Unified Tax Structure: GST consolidates multiple indirect taxes into a single tax, reducing the complexity previously associated with various state and central levies.
  • Transparency: The uniform tax rate under GST provides clarity for buyers regarding the tax component of property prices, enhancing trust in the transaction process.

Complications:

  • Input Tax Credit (ITC) Restrictions: The removal of ITC for residential projects has increased costs for developers, as they can no longer offset the GST paid on inputs against their output liability.
  • Compliance Requirements: Developers face stringent compliance obligations, including timely GST registrations, accurate invoicing, and regular return filings, which can be administratively burdensome.

GST Compliance Challenges for Developers in 2025

In 2025, developers encounter several compliance challenges:

  • E-Invoicing Mandate: The expansion of e-invoicing to include real estate transactions necessitates system upgrades and staff training to ensure seamless implementation.
  • Documentation for ITC Claims: With the rationalization of ITC provisions, maintaining meticulous records has become crucial for developers to claim credits efficiently.
  • Adherence to Revised GST Rates: Staying updated with the revised GST rates, such as the reduction from 18% to 15% for under-construction commercial properties, is essential for accurate tax computation.

The New GST Rules on the Construction of Residential Apartments

As of 2025, the GST rates on the construction of residential apartments are as follows:

Affordable Housing

1% GST Rate (without Input Tax Credit (ITC))

  • Definition: Apartments priced up to ₹45 lakh with a carpet area of up to 60 sq. meters in metro cities and 90 sq. meters in non-metro cities
  • Non-Affordable (Regular) Housing

5% GST Rate (without ITC)

  • Applicable for: All other under-construction residential apartments that do not qualify under affordable housing
  • Completed Properties (with Occupancy Certificate)

0% GST Rate (Exempt from GST)

  • No GST is charged if the property has received a completion certificate from a competent authority.
  • Under-Construction Commercial Apartments in a Residential Complex

5% GST Rate (without ITC)

  • These rates were revised in April 2019, and they continue to apply in 2025 unless further changes are introduced by the GST Council.

Conclusion

GST has streamlined taxation in the real estate sector, offering a more transparent and unified tax structure. However, it also presents challenges, particularly concerning compliance and the removal of ITC benefits for developers. Staying informed about the latest GST provisions enables developers and buyers to navigate the real estate market more effectively.

More Information

Stay updated on the latest developments in the real estate industry by following the openplot information.

Our platform offers valuable insights and updates, along with informative articles and market reports. Openplot.com helps find or sell a home, which is a significant milestone.

Frequently Asked Questions

Q. Is GST applicable to all property transactions?

A. No, GST applies only to under-construction properties. Completed properties with a completion certificate are exempt from GST.

Q. Can developers claim Input Tax Credit (ITC) under the current GST regime?

A. Developers cannot claim ITC for residential projects under the current GST rates. However, ITC is available for certain commercial projects.

Q. What are the current GST rates for residential properties?

A. As of 2025, the GST rate is 1% for affordable housing and 5% for other residential properties, both without ITC.

Q. How does GST affect REIT investors?

A. GST does not directly impact the rental income or returns distributed to REIT investors, maintaining their tax-efficient status.

Q. Are rental incomes subject to GST?

A. Rental income from residential properties is generally exempt from GST, while rental income from commercial properties is subject to GST.

Scroll to Top