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How to calculate gst on under-construction property with examples

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 ServiceGST 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     
Other irrigation works
Services under works contracts are offered to the local government, state government, union territory, and central government.
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
Works contract service provided to any person by way of construction, erection, commissioning, or installation of original works.
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  
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   
Construction contract work performed by a subcontractor for the main contractor for
Historical Monument
Archaeological site                  
Archaeological excavation     
Other irrigation works
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  
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

  1. Jawaharlal Nehru National Urban Renewal Mission
  2. Rajiv Awaas Yojana

Civil structures or other original works related to the schemes below

  1. Housing for All (Urban) Mission
  2. 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.

  1. Approved under the Scheme of Affordable Housing in Partnerships framed by the Department of Housing and Urban Poverty Alleviation, Government of India
  2. 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:

    1. Taxes, fees, or duties imposed by law other than GST.
    2. Expenses incurred by the buyer on the supplier’s behalf.
    3. Interest, late fees, or contractual penalties.
    4. Any government-provided direct or indirect subsidies.
    5. 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:

    1. If the discount is granted in accordance with the terms of a preliminary contract concluded between the purchaser and the supplier.
    2. 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.

      1. 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.
      2. 12% for the construction of complexes, buildings, etc. that are sold to the purchaser along with the land.
      3. 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. FtRs 8500
      GST rate on flat purchase1%
      GSTRs 85
      ITC benefit for a material cost of Rs 2,500 at 18%Not applicable
      TotalRs 8,585
      GST on the purchase of affordable housing

      GST on the purchase of a luxury flat

      Property cost per Sq. FtRs 20,000
      GST rate on flat purchase5%
      GSTRs 1000
      ITC benefit for the material cost of Rs 26,000 at an average of 15%Not applicable
      TotalRs 21,000
      GST on the purchase of a luxury flat

      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.

      StatesStamp Duty Rates
      Andhra Pradesh5%
      Arunachal Pradesh6%
      BiharMale to Female – 5.7%
      Female to Male – 6.3%
      Other cases – 6%
      GoaUpto Rs 50 lakh – 3.5%
      Rs 50 – Rs 75 lakh – 4%
      Rs 75 – Rs 1 crore – 4.5%
      Over Rs 1 crore – 5%
      HaryanaFor males – 7% in urban areas
      For females – 5% in urban areas
      Himachal Pradesh5%
      Jammu and Kashmir5%
      Karnataka5% (above Rs 45 lakh)
      3% (Rs 21-45 lahks)
      2% (Less than Rs 20 lakh)
      Madhya Pradesh7.5%
      Maharashtra6% for male
      5% for female
      Odisha5% (Male)
      4% (Female)
      Punjab7% (Male)
      5% (Female)
      Rajasthan5% (Male)
      4% (Female)
      Sikkim4% + 1% (in case of Sikkimese origin)
      9% + 1% (for others)
      Tamil Nadu7%
      Uttar PradeshMale – 7%
      Female – 7% -Rs 10,000
      UttarakhandMale – 5%
      Female – 3.75%
      West BengalUpto Rs 1 crore – 6%
      Above Rs 1 crore – 7%
      State-wise Stamp Duty

      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

      GST on Under-Construction Property (Complete Guide)

      Input Tax Credit under GST (Complete Guide)

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