GST Compliance Risks for Under-Construction Flats Bangalore

What Legal Checks Are Needed When the Seller Did Not Pay GST on Their Under-Construction Flat in Bangalore?

By the Property Law Team | Legal Brigade | Bar Council of Karnataka

When a Bangalore flat seller originally purchased their flat as an under-construction unit and GST was either not collected by the builder, not paid by the buyer or not remitted by the builder to the GST department, a latent GST liability may exist against the seller or the builder. This liability can surface as a GST demand during the resale process and complicate the seller’s ability to transfer clear title to the new buyer.

When Does GST Apply to Under-Construction Flat Purchases in Bangalore?

GST applies to the purchase of under-construction flats. These are flats for which the builder has not yet obtained the Occupancy Certificate at the time of the sale agreement. The rate varies by the project type and the sale consideration. Affordable housing units attract a lower rate while other residential units attract a higher rate. You should confirm the applicable rate with a Chartered Accountant for the specific transaction.

GST does not apply to the sale of ready-to-move-in flats where the OC has already been obtained before the agreement is signed. When the seller’s original purchase was of an under-construction flat, GST should have been charged by the builder and paid by the buyer. If any part of this chain was broken, a compliance gap exists that can resurface years later.

GST compliance on under-construction flat purchases in Bangalore is imperfect. Some builders fail to correctly charge GST on all payment tranches. Some buyers pay below the correct rate. Some builders collect GST from buyers but do not remit it to the GST department. Legal Brigade’s verification work on resale transactions involving originally under-construction purchases encounters GST compliance gaps in a meaningful proportion of cases where the original purchase was made between 2017 and 2022. These gaps are not theoretical risks. They are active liabilities that can derail a resale transaction if they surface as a demand notice before registration.

What Are the Specific Legal Risks When GST Was Not Properly Paid on the Original Purchase?

How Do I Check the GST Compliance Position for an Under-Construction Flat Resale?

1. Obtain the seller’s original purchase documents. Ask the seller to provide their original sale agreement, payment receipts and any GST tax invoices from the builder. These documents should confirm whether GST was charged and whether the seller has proof of payment.
2. Confirm the correct GST rate for the original purchase. The GST rate for under-construction flats changed in 2019. The correct rate depends on when the agreement was signed and whether the project qualified as affordable housing. A Chartered Accountant should confirm the applicable rate for that specific transaction.
3. Request a CA certificate from the seller. The seller should provide a certificate from their Chartered Accountant confirming their GST compliance position on the original under-construction purchase. This certificate should cover any input tax credit claimed and whether any GST demand has been received from the department.
4. Check the builder’s GST compliance status. A builder under GST enforcement may have unremitted GST from buyer collections. This includes the seller’s original purchase. Check whether the builder has any GST arrears, demands or enforcement proceedings outstanding.
5. Have a property lawyer and the seller’s CA jointly assess the GST position. Both professionals should review the documents together before the resale agreement is signed. This joint assessment ensures that legal and tax perspectives are aligned before the buyer makes any financial commitment.

What Is the Difference Between GST on Under-Construction Flats and Completed Flats?

What Should the Resale Agreement Contain About GST Compliance?

The resale sale agreement for a flat that was originally purchased under-construction should include a specific seller representation. The seller must confirm that all GST applicable to the original purchase was correctly paid and that no GST demand or notice has been received in relation to the original purchase period.

The agreement should also include an indemnity from the seller against any GST demand that arises after the resale closing. This indemnity should specifically cover demands attributable to the original purchase period. Where the seller cannot confirm their GST compliance position because the builder handled GST and the seller has no receipts, the buyer should treat this as a material risk factor. The purchase price or the terms should be adjusted to reflect this uncertainty.

See Legal Brigade’s complete GST property guide at /gst-property-documentation-bangalore/

Frequently Asked Questions

Q1. When does GST apply to a flat purchase in Bangalore?

GST applies when you purchase an under-construction flat in Bangalore. This means the builder has not yet obtained the Occupancy Certificate at the time you sign the sale agreement. The applicable rate depends on the project type and the year of purchase. GST does not apply to ready-to-move flats where the OC was already obtained before the agreement date. Always confirm the specific rate with a Chartered Accountant.

Q2. Does GST apply when I buy a ready-to-move flat?

No. GST does not apply to the purchase of a ready-to-move flat where the Occupancy Certificate was obtained before the sale agreement was signed. In such cases, only stamp duty and registration charges apply. The distinction between under-construction and ready-to-move is critical because it determines whether GST is part of the transaction cost.

Q3. What if the builder collected GST but did not remit it to the GST department?

This is a serious risk. If the builder collected GST from the buyer but failed to remit it, the GST department can pursue the builder for the unremitted amount. If the builder’s assets are attached, the project itself may be affected. The original buyer may also face questions about whether they paid GST to a non-compliant builder. Verification of the builder’s GST compliance status is essential before any resale.

Q4. Can the GST department issue a demand to the buyer if the builder failed to remit GST?

Yes, this is possible. If the GST department determines that GST was due on the original under-construction purchase and was not paid, it can issue a demand to the person who purchased the flat. This is why the seller’s GST compliance records and CA certificate are critical. A buyer who inherits this liability through a resale may face unexpected demands.

Q5. Does GST apply to the resale of an under-construction flat?

Potentially yes. If the flat is still under-construction at the time of resale, meaning the OC has not yet been obtained, GST may apply to the resale transaction as well. The new buyer would pay GST to the original seller, who must remit it. If the OC has been obtained before the resale, GST does not apply. Confirm the OC status before signing.

Q6. What is input tax credit on flat purchases and when is it reversed?

Input tax credit, or ITC, allows a buyer to claim credit for GST paid on the purchase against their own GST liability. On under-construction flat purchases, ITC claims are subject to specific conditions. If the GST department later determines that the ITC was claimed improperly, it can issue a reversal demand. This demand becomes a liability of the original buyer and must be cleared before a clean resale can proceed.

Q7. How do I check whether GST was correctly paid on a flat I am considering reselling?

Request the original sale agreement, all payment receipts and GST invoices from the builder. Ask the seller for a CA certificate confirming GST compliance. Check the builder’s GST registration and compliance status. Have a property lawyer review the documents. If the seller cannot produce GST proof, treat this as a red flag requiring further investigation or a price adjustment.

Q8. What should the resale agreement say about GST compliance from the original purchase?

The resale agreement should contain a specific representation from the seller confirming that all GST on the original purchase was correctly paid and no demand has been received. It should also include an indemnity clause where the seller agrees to bear any GST demand that arises after the sale and relates to the original purchase period. This protects the buyer from inherited liability.

Q9. What CA certificate should a seller provide about GST compliance?

The seller should provide a certificate from their Chartered Accountant confirming that GST was correctly charged and paid on the original under-construction purchase. The certificate should state the applicable rate, the amount paid, whether any ITC was claimed and whether any GST demand or notice has been received from the department. This certificate is a standard document in well-documented resale transactions.

Q10. How does Legal Brigade check GST compliance during property verification?

Legal Brigade reviews the seller’s original purchase documents, GST payment receipts and builder invoices. We verify the builder’s GST compliance status and check for any departmental demands or enforcement proceedings. We coordinate with the seller’s CA to confirm the GST position. Our written legal opinion flags any GST-related risk and recommends specific protective clauses for the resale agreement.

Reselling a Bangalore flat that you originally purchased under construction? Your GST compliance on the original purchase needs confirmation before you can give clear representations to your buyer.

WhatsApp → wa.me/916360266840

Frequently Asked Questions