Calculate GST on Under-Construction Property with Examples (2023)
Goods and Services Tax(GST) is a comprehensive tax regime that has replaced many of India’s indirect taxes. i.e. Commodity tax, value-added tax, service tax, etc. The Goods and Services Tax Act, which took effect on July 1, 2017, increased transparency in the taxation process. However, many homebuyers often question how GST affects their property and how to calculate GST on under-construction property.
Let’s dive into the below article to clear any doubts.
What Is the GST Rate for Works Contractors?
Works Contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of any immovable property wherein the transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.
It is a combined supply of both services and goods, with the service element predominating in the parties’ contract. Works contracts can relate to both land and immovable property.
| Description of Service | GST Rates |
| Services under work contracts are offered to the local government, state government, union territory, and central government. Contract services for construction, construction, commissioning, installation, completion, installation, repair, maintenance, refurbishment, or modification of the above works. Historical Monument Archaeological site Archaeological excavation Antiquity Canal Dam Other irrigation works Pipeline Conduit Plant | 18% |
| Services under works contracts are offered to the local government, state government, union territory, and central government. Road-Bridge Tunnel Terminal for road transport Civil structure or any other original work (See Note-1) Pollution control plant-Effluent treatment plant-Funeral, burial, and cremation of deceased-Building (See Note-2) | 18% |
| Works contract service provided to any person by way of construction, erection, commissioning, or installation of original works. Railway-Monorail, Metro An individual residential unit, excluding part of a dwelling. 60 sqm low-cost housing in residential projects (see note-3) The post-harvest storage infrastructure for agricultural products Cold storage for agriculture produces Mechanized system for handling food grain machines Equipment | 18% |
| Works contract service provided to Central Government, State Government, Union Territory, and Local Authority by contract services for construction, construction, commissioning, installation, completion, installation, repair, maintenance, renovation, or modification of any of the above works. Original non-commercial work (commercial, industrial, or other non-business means) Educational institution-clinical facility Arts and Cultural Facilities Condominium Administrative self-use, government dormitory, or for specific people | 18% |
| Construction contract work performed by a subcontractor for the main contractor for Historical Monument Archaeological site Archaeological excavation Antiquity Canal Dam Other irrigation works Pipeline Conduit Plant Non-commercial original work ( other than commercial, industrial, or other non-business means ) Educational/clinical/art/cultural establishment Residential complex Gov. self-use, Gov. quarters, or for specified persons | 18% |
| Works contract service provided to Central Government, State Government, Union Territory, and Local Authority for primary earthworks (i.e. 75% or more earthworks) | 12% |
| Works contract service Mainly from subcontracting earthworks to general contractors (meaning 75% or more earthwork) | 12% |
Note 1:
Civil structures or other original works related to the schemes below
- Jawaharlal Nehru National Urban Renewal Mission
- Rajiv Awaas Yojana
Civil structures or other original works related to the schemes below
- Housing for All (Urban) Mission
- Pradhan Mantri Awas Yojana (Urban)
Note 2:
In premises owned by entities registered under Section 12AA or 12AB of the Information Technology Act of 1961 for the purpose of centralized cooking or distribution of lunches under lunch plans sponsored by the Central, State, Union Territory, or Local Government.
Note 3:
Low-cost housing of 60 square meters per house for residential projects.
- Approved under the Scheme of Affordable Housing in Partnerships framed by the Department of Housing and Urban Poverty Alleviation, Government of India
- Housing for All (Urban)/Affordable Housing component in partnership with Pradhan Mantri Awas Yojana Mission or state government housing programs.
What Is the Valuation Rule in GST?
According to GST valuation rules, tax can be calculated according to the ad valorem principle. In other words, the taxpayer can calculate the amount of tax owed based on the assessed value of the goods or services provided. Yet, when assessing the amount of tax under GST, consider the following three points.
Transaction Value: The transaction value is the taxable value. In other words, the value paid or required to be paid by the buyer to the supplier will be considered transaction value under GST.
Mandatory Inclusions: Below are some of the important things to consider when evaluating:
- Taxes, fees, or duties imposed by law other than GST.
- Expenses incurred by the buyer on the supplier’s behalf.
- Interest, late fees, or contractual penalties.
- Any government-provided direct or indirect subsidies.
- Any other incidental expenses incurred by the supplier, such as commission or packaging and handling costs.
Exclusion of Discounts: When calculating the taxable value, the taxpayer must deduct all discounts from the value of the supply, whether they are trade or pre-supply discounts. However, it is possible to exclude the backorder discount during the evaluation if both of the following conditions are met:
- If the discount is granted in accordance with the terms of a preliminary contract concluded between the purchaser and the supplier.
- Purchaser should reverse any Input Tax Credit (ITC) applicable to such discounts.
What Is the Rate of GST on Construction?
The GST rates for construction works are.
- 18% of the construction of complexes, buildings, civil structures, or parts thereof, including complexes or buildings intended for sale in whole or in part to a purchaser.
- 12% for the construction of complexes, buildings, etc. that are sold to the purchaser along with the land.
- 5% on housing under construction and 1% on affordable housing.
How Is GST Calculated on an Under-Construction Property Example?
Let’s assume that you purchase an under-construction residential property worth Rs. 80,00,000 from a builder that does not qualify for an affordable housing scheme. The land value of this property is Rs. 20,00,000. The construction GST would only apply to the remaining Rs. 60,00,000.
The GST rate for the under-construction property will be
60,00,000 x 5% = Rs. 3,00,000
How Do You Calculate GST on a New Flat?
GST on the purchase of affordable housing
| Property cost per Sq. Ft | Rs 8500 |
| GST rate on flat purchase | 1% |
| GST | Rs 85 |
| ITC benefit for a material cost of Rs 2,500 at 18% | Not applicable |
| Total | Rs 8,585 |
GST on the purchase of a luxury flat
| Property cost per Sq. Ft | Rs 20,000 |
| GST rate on flat purchase | 5% |
| GST | Rs 1000 |
| ITC benefit for the material cost of Rs 26,000 at an average of 15% | Not applicable |
| Total | Rs 21,000 |
How Do You Calculate GST on a Plot?
Goods and Services Tax (GST) is not payable on the sale of land, even if it is sold after work related to basic needs (land clearing, installation of sewers, etc.) is completed.
How Much Stamp Duty Is Payable on Registration of Property?
Registration fees paid when registering property are not subject to GST. Stamp duty is payable at the time when the property is registered.
The table below shows a breakdown of stamp duty and registration fees by state.
| States | Stamp Duty Rates |
| Andhra Pradesh | 5% |
| Arunachal Pradesh | 6% |
| Assam | 8.25% |
| Bihar | Male to Female – 5.7% Female to Male – 6.3% Other cases – 6% |
| Chhattisgarh | 5% |
| Goa | Upto Rs 50 lakh – 3.5% Rs 50 – Rs 75 lakh – 4% Rs 75 – Rs 1 crore – 4.5% Over Rs 1 crore – 5% |
| Gujarat | 4.9% |
| Haryana | For males – 7% in urban areas For females – 5% in urban areas |
| Himachal Pradesh | 5% |
| Jammu and Kashmir | 5% |
| Jharkhand | 4% |
| Karnataka | 5% (above Rs 45 lakh) 3% (Rs 21-45 lahks) 2% (Less than Rs 20 lakh) |
| Kerala | 8% |
| Madhya Pradesh | 7.5% |
| Maharashtra | 6% for male 5% for female |
| Manipur | 7% |
| Meghalaya | 9.9% |
| Mizoram | 9% |
| Nagaland | 8.25% |
| Odisha | 5% (Male) 4% (Female) |
| Punjab | 7% (Male) 5% (Female) |
| Rajasthan | 5% (Male) 4% (Female) |
| Sikkim | 4% + 1% (in case of Sikkimese origin) 9% + 1% (for others) |
| Tamil Nadu | 7% |
| Telangana | 5% |
| Tripura | 5% |
| Uttar Pradesh | Male – 7% Female – 7% -Rs 10,000 |
| Uttarakhand | Male – 5% Female – 3.75% |
| West Bengal | Upto Rs 1 crore – 6% Above Rs 1 crore – 7% |
FAQs: Calculate GST on Under-construction Property with Examples
Is stamp duty charged on GST?
GST Excludes stamp duty and registration fees. Stamp Duty will continue to be levied on both completed and under-construction properties as it was before the GST regime.
Is GST calculated on agreement value?
GST is charged on the actual transaction value, not the agreement value.
Is GST calculated on carpet area or built-up area?
GST is calculated on carpet area.
Is GST calculated on MRP or selling price?
GST is applied to the selling price, not the MRP. MRP includes all taxes including GST.
Wrapping Up
Since it is a well-known fact that our Indian economy is strongly supported by the real estate sector. Earlier buyers were responsible for paying a number of taxes under the previous tax system, including VAT, service tax, stamp duty, and registration fees.
However, under the GST, properties that are still under construction are subject to a single rate. Properties that are under construction are subject to an 18% tax, of which you are required to pay 12%.
The information above will help you quickly calculate GST on under-construction property. If you still have worries using regarding GST calculation.
You can contact our InstaFiling experts to calculate your GST and find out what GST you must pay when buying an under-construction property. So, why are you holding out?
Recommended Articles
Continue reading
GST on Under-Construction Property (2023 Rates)
There is a significant change in the GST rate for the property sector. Many buyers...
Compliances With Regard To GST
Once you have registered your business under GST and obtained your GSTIN number, the next...
Goods Transport Agency Under GST (Guide 2023)
Transportation is the movement of people or goods from one place to another. Transportation is...
