How GST Applies When You Buy an Under-Construction Flat

What is the GST Rate on an Under-Construction Flat in India in 2026?

The GST rate for under-construction residential properties in India depends on the flat's housing category. This structure has been in place since 1 April 2019, when the GST Council updated the rates for residential real estate:

1% GST (notified rate) for affordable housing: Flats that qualify as affordable housing have a carpet area of up to 60 sq m in metro cities (Mumbai, Bengaluru, NCR, Chennai, Hyderabad, Kolkata) or up to 90 sq m in non-metro cities. The total price must not go above ₹45 lakh to be eligible for a 1% GST rate. This rate is applied to two-thirds of the agreement value after deducting one-third for land. As a result, the effective rate on the total price is about 0.67%. Developers in this group cannot claim Input Tax Credit on inputs and cannot transfer ITC to buyers.

5% GST (notified rate) for non-affordable housing: All other under-construction residential flats, including luxury and premium apartments in Mumbai, face a 5% GST rate. This rate also applies to two-thirds of the agreement value, leading to an effective rate of about 3.33%. Developers cannot claim ITC on inputs and cannot pass it on to buyers.

To clarify the rate structure, the 5% and 1% rates apply to the property's taxable value. This value is two-thirds of the total agreement price after the mandatory one-third land deduction. GST is a tax on construction services, not on land. Since most transactions do not clearly separate the land component, the law allows for a standard one-third deduction for land and imposes GST on the remaining two-thirds.

For historical context, before April 1, 2019, the rates were 12% for non-affordable and 8% for affordable, both based on the same two-thirds taxable value. ITC was available to developers and expected to benefit buyers. The current 5% and 1% structure replaced this with lower rates and no ITC, simplifying the calculation for buyers.

Regarding GST on flat purchases in Mumbai, nearly all premium projects fall under the 5% rate since their prices exceed ₹45 lakh. Piramal Mahalaxmi, Piramal Aranya, and Piramal Vaikunth all belong to the non-affordable category.

GST rates follow the revised rates from the GST Council, effective 1 April 2019, and remain in force as of mid-2026. These rates may change; verify the current rates with a chartered accountant before completing any transaction.

Is GST Applicable on a Ready-to-Move Flat and What Happens When the OC Is Issued?

No, GST is not applicable to a ready-to-move flat that has received its Occupancy Certificate (OC). This is a clear rule in the GST framework for real estate: once a project receives its OC, selling the flat is treated as a sale of immovable property, not a supply of construction services. Under the GST Act, a sale of immovable property is outside the scope of GST. The only taxes applicable at that point are stamp duty, paid to the state government, and registration charges.

The OC acts as the dividing line. The same flat, which is 5% GST effective when sold during construction, becomes GST-exempt once the builder obtains the OC. This creates an important question for buyers: should they buy before or after the OC?

Buying before OC (under-construction): GST at 1% or 5% applies on the agreement value. Total payments are higher at purchase time, but buyers may enjoy a lower base price. Developers usually price under-construction units lower than those sold post-OC. Buyers may also have more choices and stronger RERA rights during construction.

Buying after OC (ready to move): No GST is payable. Stamp duty and registration charges still apply. Post-OC units typically cost more in the primary market and are available from developers as completed inventory or from previous buyers in the resale market.

The practical implication is significant. For a premium ₹3 crore flat in Mumbai, buying before the OC means paying around ₹10 lakh in GST 5% on the taxable value of ₹2 crore (two-thirds of ₹3 crore). Buying after the OC removes that ₹10 lakh, but the post-OC unit may cost ₹10–20 lakh more because of its completed status and zero GST liability. The overall comparison depends on the price differences between under-construction and completed units in that project.

How Is GST Calculated on a Flat Purchase? The One-Third Land Deduction Rule

The question of how GST is calculated on a flat purchase is answered by a specific rule in the GST framework for real estate. The taxable value of an under-construction flat is the total agreement value minus a mandatory one-third deduction for the land. The reasoning is that GST is a tax on goods and services, and land, being immovable, is not considered a supply of goods or services under the GST Act. Thus, the law requires a one-third deduction of the agreement value to account for the land cost. GST is then applied only to the remaining two-thirds.

This one-third deduction is fixed, regardless of the actual land cost. Whether the project is in South Mumbai, where land can make up 80% of costs, or in a more affordable location, the deduction remains at one-third. This standardisation simplifies the calculation, but it means the effective rate on total consideration is always two-thirds of the nominal GST rate.

Worked example — non-affordable housing (₹1.5 crore flat, Mumbai):

This calculation applies to under-construction flats in the non-affordable category. For affordable housing, apply 1% to the taxable value (two-thirds of the agreement value) instead of 5%, resulting in GST of ₹1 lakh on a ₹1.5 crore flat, with an effective rate of approximately 0.67% on total consideration.

The agreement value includes all the amounts the developer charges, such as the base price, floor rise, preferred location charges (PLC), and any other amounts in the sale agreement. GST is applied to the total consideration, not just the base price. For calculation purposes, 5% on the taxable value (₹1 crore in the example above) equals ₹5 lakh. This comes to about 3.33% of the full ₹1.5 crore agreement value.

Is the GST Rate Different for Affordable and Non-Affordable Housing?

Yes, significantly. The GST Council introduced the two-tier structure to make entry-level housing more accessible. Affordable housing has a GST rate of 1% on the taxable value, while non-affordable housing has a rate of 5%. For a ₹45 lakh flat, which is the ceiling of the affordable category, the GST difference between 1% and 5% on taxable value is about ₹1.8 lakh. This amount is significant at that price point.

The definition of affordable housing under GST uses a dual test; both conditions must be met at the same time:

Carpet area condition: The carpet area must not exceed 60 sq. m. in metro cities (Bengaluru, Chennai, NCR, Mumbai, Hyderabad, Kolkata) and 90 sq. m. in non-metro cities. This is the carpet area defined under RERA, the net usable area inside the walls, excluding balconies, common areas, and walls.

Price condition: The total consideration must not exceed ₹45 lakh. This cap has not been revised since the April 2019 notification; it has not kept pace with inflation or property prices in major cities. As a result, almost no new residential project in Mumbai, Pune, or Bengaluru qualifies as affordable under GST, regardless of carpet area.

For buyers in premium Mumbai, the 1% rate is largely irrelevant. All new luxury projects cost more than ₹45 lakh. Buyers of PM Awas Yojana or government-linked schemes should check with a chartered accountant, as additional rules may apply.

Can Buyers Claim ITC on GST Paid? What About Parking and Amenity Charges?

Input tax credit (ITC) for homebuyers: No. Homebuyers cannot claim Input Tax Credit on the GST they pay on an under-construction flat. ITC is a mechanism for registered GST businesses to offset the GST they pay on their purchases against the GST they collect from their customers. Individual homebuyers are not registered GST businesses and have no means to claim ITC. The 5% or 1% GST on the flat is a final, non-recoverable cost for the buyer.

Since April 2019, developers of residential under-construction projects have also been unable to claim ITC on inputs. This is why the rates were reduced from 12%/8% to 5%/1% at the same time. The net cost to buyers is lower under the new structure than it was under the old rates-with-ITC approach, even though buyers themselves have no ITC.

GST on parking charges: The rules depend on how the parking space is structured. If the parking space is included in the agreement for sale as part of the same supply as the flat, then GST at 5% (or 1%) applies. If it is sold separately under a post-Occupancy Certificate (OC) agreement, it may not be covered by GST. However, tax authorities have scrutinised separate parking agreements structured to avoid GST on what is essentially the same transaction. Always confirm with your chartered accountant how the developer has structured parking before assuming it is GST-exempt.

GST on amenity charges and club membership fees: Compulsory charges, which all buyers must pay as a condition of purchase, are treated as part of the flat's consideration and attract GST at 5% or 1%. Optional charges under a separate agreement may be classified differently. In practice, anything bundled into the booking amount or construction-linked payments is treated as part of the flat's consideration.

Understanding GST for under-construction flats is not about finding loopholes, as none exist for individual homebuyers. It is about accurately calculating your total purchase cost upfront to avoid surprises regarding GST liability when payment requests come in. For a ₹3 crore flat in Mumbai, GST adds about ₹10 lakh to the total cost, 5% on the ₹2 crore taxable value (which is two-thirds of the agreement value). That amount should be included in your financial planning from the beginning. If you are considering a flat at Piramal Mahalaxmi, Piramal Aranya, or Piramal Vaikunth, Piramal Realty's sales team can provide a complete cost breakdown, including GST, stamp duty, and registration charges for your specific unit, before you decide.

Disclaimer - This article is based on the information publicly available for general use as well as reference links mentioned herein. The views expressed above are for informational purposes only based on industry reports and related news stories. Piramal Realty does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information. Piramal Realty expressly disclaims/disowns any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any information provided herein.