If you’re purchasing GST on under-construction property in India, understanding your tax obligations in 2026 is not optional — it’s essential. Whether you’re a first-time homebuyer in Mumbai, an NRI investing from Dubai, or a global real estate fund evaluating Indian residential assets, the GST framework governing under-construction properties directly impacts your total cost, compliance exposure, and tax credit eligibility.
Unlike ready-to-move properties, which are exempt from GST, under-construction units attract GST at rates that vary based on project type, affordability classification, and whether the builder has opted for Input Tax Credit. The rules have evolved significantly since GST was introduced in 2017, and the 2019 amendments — still operative in 2026 — fundamentally restructured how developers and buyers approach tax planning.
This guide breaks down everything: applicable rates, ITC eligibility, builder obligations, buyer implications, and practical compliance steps — for Indian residents, NRIs, foreign companies, and overseas investors.
Understanding GST on Under-Construction Property in India
Under Indian GST law, the sale of an under-construction property is treated as a supply of service — specifically, a works contract service. The point of taxation arises before or at the time of completion certificate issuance. Once a completion certificate is granted by the competent authority, the property becomes “ready to move” and GST ceases to apply on its sale.
For real estate and construction sector participants, this distinction is commercially critical.
Current GST Rate Structure (Effective from April 1, 2019 — Applicable in 2026):
| Property Category | GST Rate | ITC Availability |
|---|---|---|
| Affordable Housing (PMAY-linked, up to ₹45 lakh) | 1% (effective) | Not available |
| Other Residential (non-affordable) | 5% (effective) | Not available |
| Commercial Properties (under construction) | 12% | Available |
| Government Housing Schemes | 1% | Not available |
The “effective” rates above are after the land abatement of one-third of the total consideration, which is mandatorily deducted before computing GST liability. So on a ₹90 lakh apartment, GST applies on ₹60 lakh — not the full amount.
Understanding affordable housing classification is crucial. A unit qualifies as affordable if it meets both conditions: carpet area not exceeding 60 sq. metres in metro cities (90 sq. metres elsewhere) and value not exceeding ₹45 lakh. Projects under PMAY (Pradhan Mantri Awas Yojana) and similar government schemes often fall in this category.
Legal Framework & Regulations Governing Property GST in India
The primary legislation governing GST on under-construction property includes:
Central Goods and Services Tax Act, 2017 (CGST Act) — defines works contract, place of supply, and tax liability provisions. Notifications 03/2019 and 04/2019 issued by CBIC govern the new rate structure.
Schedule III of CGST Act — exempts sale of land and completed buildings from GST, creating the critical distinction between under-construction and ready-to-move inventory.
RERA (Real Estate Regulation and Development Act, 2016) — while not a GST law, RERA governs builder disclosures including GST component in agreements. Buyers have the right to demand GST-compliant receipts and computation breakdowns. Compliance with GST registration is mandatory for all developers with taxable turnover above ₹20 lakh.
RBI and FEMA Compliance for NRI Buyers — NRIs purchasing under-construction property must also comply with FEMA regulations governing repatriation of sale proceeds and remittance of purchase consideration. The RBI/FEMA compliance framework operates parallel to GST and creates an additional compliance layer for foreign buyers.
For foreign companies or MNCs acquiring commercial under-construction property, GST advisory services and international tax advisory are often required to navigate cross-border fund flows and GST registration obligations.
The government body administering GST is the Central Board of Indirect Taxes and Customs (CBIC) under the Ministry of Finance. Developers must file GST return filings monthly or quarterly depending on turnover and are liable for anti-profiteering provisions if they retain ITC benefits without passing savings to buyers.
Step-by-Step Process: GST Compliance for Under-Construction Property
For Indian Resident Buyers
- Verify project classification — Confirm whether the property qualifies as affordable or non-affordable housing. Request the developer’s RERA registration and GST registration certificate.
- Compute GST liability correctly — Apply the one-third land deduction to the agreement value. On remaining two-thirds, apply 1% or 5% as applicable. Example: ₹75 lakh apartment → GST applies on ₹50 lakh → at 5% = ₹2.5 lakh GST.
- Demand GST-compliant invoice — Every instalment payment should be against a Tax Invoice issued by the developer showing GSTIN, HSN code (9954 for construction services), rate, and tax amount separately.
- File your Income Tax Return with accurate property cost — Property purchase cost for capital gains computation includes GST paid. Maintain all GST invoices. Income tax return filing must reflect the complete acquisition cost.
- Watch for completion certificate — Once issued, GST stops applying on installments. Inform developer immediately and ensure future receipts are GST-free.
For NRIs
- Remit purchase consideration through NRE/NRO accounts per FEMA guidelines.
- GST liability and payment mechanism remains same as residents — developer collects and deposits.
- Maintain all invoices for future repatriation eligibility.
- Consider estate management services for NRIs for property holding structure.
For Foreign Companies / MNCs
- Commercial property acquisitions by foreign entities require business setup in India for foreign nationals structuring.
- Foreign companies may need to obtain GSTIN if they have a fixed establishment in India.
- ITC on commercial property GST (12%) can be claimed if the entity is GST registered and uses the property for taxable supply of services.
- FEMA/RBI compliance must be addressed before property acquisition.
For Global Startups & Overseas Investors
- Evaluate whether to acquire property through an Indian subsidiary (Private Limited Company) or LLP for tax efficiency. Private limited company registration or LLP registration creates a clean vehicle for real estate investment.
- Corporate acquisition enables ITC on commercial properties.
- Transfer pricing compliance considerations apply if the investment involves related-party transactions.
Key Challenges and Practical Issues in 2026
1. ITC Reversal Risk for Developers
Developers who opted for the old ITC-available rate structure before April 2019 and transitioned to the new regime must ensure proper ITC reversal calculations. Errors in ITC reversal on input goods and services used for exempt portions attract significant interest and penalties.
2. Mixed-Use Projects
Buildings with both residential and commercial components present complex GST allocation challenges. Proportionate ITC reversal on residential portions is mandatory. Many developers misclassify floor areas, creating audit exposure.
3. Subvention Schemes and Deferred Payment Plans
EMI-linked or builder-pays-EMI schemes complicate the time of supply determination. GST becomes payable at each installment trigger, not at possession. Buyers should ensure GST is charged at each milestone, not lump-sum at possession.
4. Anti-Profiteering Provisions
Post-April 2019, developers cannot claim ITC on residential projects. However, the National Anti-Profiteering Authority (NAA) — now subsumed under CCI — has issued rulings against developers who maintained prices without passing pre-2019 ITC benefits to buyers. Prospective buyers of older under-construction projects should check if anti-profiteering applications are pending.
5. Documentation Gaps for NRI Buyers
NRI buyers often face challenges in maintaining GST invoices, particularly when managing properties remotely. Missing invoices create capital gains computation issues at the time of sale. Engaging accounting and internal auditing services is advisable for documentation management.
6. Composite vs. Works Contract Classification
Some developers incorrectly classify transactions as pure sale (not liable to GST) when construction is ongoing. Tax authorities have challenged such classifications, imposing GST, interest, and penalties. Buyers should independently verify developer GST compliance status on the GST portal before making payments.
Strategic Insights & Expert Recommendations
1. Always verify developer’s GST compliance status before booking. Check their GSTIN on www.gst.gov.in for filing history. A developer with lapsed returns is a compliance liability for the buyer.
2. Negotiate GST-inclusive pricing — In the current new regime where developers cannot claim ITC on residential projects, their input costs are embedded in property prices. Buyers with strong negotiating positions should seek all-inclusive pricing with GST explicitly computed and capped.
3. Corporate structuring for commercial property acquisitions — Investors acquiring commercial under-construction property should strongly consider acquisition through a registered Indian company to leverage the 12% ITC benefit. This is particularly advantageous for co-working operators, retail chains, and IT companies with significant taxable output.
4. PMAY pre-qualification for affordable units — If your unit qualifies for the affordable segment, the 1% rate represents substantial savings on larger ticket transactions. Proactively verify classification with the developer and obtain written confirmation in the sale agreement.
5. Maintain a GST invoice folder digitally — Cloud-based archiving of all property-related GST invoices is essential for future capital gains computation, inheritance planning, and potential ITC claims. Consider financial reporting compliance services for systematic record management.
6. International investors should seek pre-investment tax structuring — The interaction of GST, income tax, stamp duty, and FEMA creates a multi-layered compliance environment. A pre-investment tax opinion from qualified advisors prevents costly restructuring later.
For foreign nationals and MNCs considering India market entry through real estate, Startup Solicitors LLP provides end-to-end advisory across GST structuring, FEMA compliance, corporate setup, and taxation and compliance services.
Frequently Asked Questions (FAQs)
Q1. Is GST applicable on under-construction flats purchased in 2026?
Yes. GST applies on all under-construction residential and commercial properties where the completion certificate has not been issued. Residential non-affordable housing attracts 5% GST (effective, after land deduction), while affordable housing units attract 1%. Completion certificate issuance ends GST liability on that property.
Q2. Can homebuyers claim Input Tax Credit on GST paid for under-construction property?
No. Under the revised GST regime effective April 1, 2019, individual homebuyers cannot claim ITC on GST paid for residential under-construction property. ITC remains available only for commercial property acquisitions through GST-registered businesses for taxable business use.
Q3. How is GST calculated on an under-construction apartment costing ₹80 lakh?
The calculation applies a mandatory one-third land abatement. Effective taxable value = ₹80 lakh × 2/3 = ₹53.33 lakh. At 5% GST (non-affordable), the GST payable = approximately ₹2.67 lakh. At 1% (affordable housing), GST = approximately ₹53,333. Always verify the applicable rate based on project classification.
Q4. What happens to GST if the builder delays possession beyond the agreed date?
GST liability is triggered at each installment payment milestone, not at possession. Delays do not alter GST already paid. However, if the project remains under-construction, GST continues to apply on future installments. Any compensation received from the builder for delay may attract separate GST analysis.
Q5. Do NRIs pay GST differently on under-construction property purchases in India?
No — NRIs pay the same GST rates as Indian residents on under-construction property. The tax is collected by the developer. However, NRIs must additionally comply with FEMA regulations on fund remittance, repatriation limits, and account type requirements (NRE/NRO), which operate independently of the GST framework.