GST on Under-Construction Flats in Bangalore: Legal Guide

What Legal and Tax Checks Are Needed Regarding GST on an Under-Construction Flat Purchase in Bangalore?

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

When a Bangalore buyer purchases an under-construction flat from a developer who is registered under the Goods and Services Tax framework – which applies to all developers selling residential units in projects where construction is ongoing at the time of the sale – the buyer must pay GST on the agreement value for the construction component of the sale, the applicable GST rate depends on whether the project qualifies as affordable housing and whether the developer opted for the old or new GST scheme, and the total cost of the flat includes the agreement value plus GST plus stamp duty plus registration fee – with the buyer having no right to claim Input Tax Credit on the GST paid because the residential flat is for the buyer’s personal use and not for business purposes.

What GST Rate Applies to Under-Construction Flat Purchases in Bangalore?

The GST Council revised the GST rates for residential real estate with effect from April 1, 2019. Under the revised scheme, the standard rate for under-construction flats that do not qualify as affordable housing is five percent of the agreement value without Input Tax Credit for the developer. For flats that qualify as affordable housing – broadly, flats with a carpet area of up to sixty square metres in non-metropolitan areas or forty-five square metres in metropolitan areas and an agreement value of up to forty-five lakh rupees – the GST rate is one percent without ITC. The five percent and one percent rates apply to the total agreement value including the land component – the developer does not deduct any land value for GST purposes under the revised scheme.

A critical point for buyers is that GST is not payable on the purchase of a completed flat – one for which the developer has already obtained the Occupancy Certificate before the sale agreement is executed. GST applies only to under-construction sales where the OC has not been obtained at the time the agreement for sale or the allotment letter is executed. A developer who collects GST on the sale of a flat after the OC has been obtained is collecting GST incorrectly – the buyer should not pay GST on a post-OC flat purchase.

Table 1: GST Rate Applicability for Bangalore Under-Construction Flat Purchases

What Should Buyers Check Regarding GST Compliance Before Signing the Sale Agreement?

The buyer’s primary GST-related obligation is to confirm the GST amount is correctly calculated on the agreement value and that the developer is a registered GST taxpayer who will deposit the collected GST with the government. A developer who collects GST from buyers but does not deposit it with the government is creating a tax default that can, in certain circumstances, result in the GST Department attaching the project’s assets – including unsold flats.

The buyer has no Input Tax Credit available for the GST paid on a residential flat purchase – because the flat is not being used for business purposes. This means the GST paid by the buyer is a sunk cost that cannot be set off against any business tax liability. The total acquisition cost of the flat for the buyer therefore includes the agreement value plus five percent GST plus stamp duty plus registration fee – a total cost that must be factored into the home loan amount and the available funds.

How Does the Developer’s GST Registration and Compliance Affect the Buyer?

Step 1: Confirm the developer is a registered GST taxpayer by searching the GST portal (gst.gov.in) for the developer’s GSTIN. A developer who is not GST-registered should not be collecting GST from buyers.

Step 2: Confirm the GST invoice issued by the developer for each instalment payment is a tax invoice – not merely a receipt – with the developer’s GSTIN, the buyer’s name and address, the SAC code for construction services and the correct GST amount calculated at the applicable rate.

Step 3: Confirm the developer is filing GST returns regularly. A developer who is collecting GST but not filing returns is creating a tax default. The GST portal allows anyone to check a GSTIN’s filing history.

Step 4: Confirm the flat’s OC status at the time of the sale agreement. If the OC has already been obtained, GST is not applicable – a developer who is collecting GST on a post-OC flat is collecting incorrectly and the buyer should not pay it.

Step 5: Have a CA confirm the GST calculation, the applicable rate for the specific flat and the developer’s GST compliance status before signing the sale agreement and paying any GST amount.

Table 2: GST Compliance Checklist for Under-Construction Flat Buyers

Frequently Asked Questions

Q1. What is GST and does it apply to all flat purchases in Bangalore?

GST – Goods and Services Tax – applies to the purchase of under-construction flats where construction is ongoing at the time of the sale agreement. GST does not apply to the purchase of completed flats – those for which the Occupancy Certificate was already obtained before the sale agreement was executed. For under-construction flats, the applicable rate is one percent for affordable housing and five percent for non-affordable housing on the total agreement value.

Q2. What is the GST rate for an affordable housing flat in Bangalore?

An affordable housing flat in Bangalore – as a metropolitan city – is one with a carpet area of up to sixty square metres and an agreement value of up to forty-five lakh rupees. The GST rate for qualifying affordable housing flats is one percent of the agreement value without ITC for the developer. Flats above sixty square metres in carpet area or above forty-five lakh rupees in agreement value are taxed at five percent.

Q3. Can a flat buyer claim Input Tax Credit for the GST paid on the purchase?

No – a flat buyer who purchases for personal residential use cannot claim Input Tax Credit for the GST paid. ITC is available only for GST paid on inputs used in business activities. A residential flat purchase is a personal use purchase – the GST paid is a final cost for the buyer with no offset against any business tax liability. Only buyers who purchase flats as part of their business activities – such as developers who purchase completed flats for resale – may be able to claim ITC under specific circumstances.

Q4. What happens if the developer collects GST but does not deposit it with the government?

A developer who collects GST from buyers but does not deposit it with the GST Department has committed a tax default. The GST Department can initiate recovery proceedings against the developer – including attaching the project’s assets and unsold inventory. In extreme cases, the GST Department can also pursue recovery from the project’s buyers if the GST was collected but not deposited and the developer is unable to satisfy the demand. This risk is real but relatively rare – and is mitigated by confirming the developer’s GST return filing status before making payments.

Q5. Is GST included in the total cost the buyer pays to the developer?

GST is in addition to the agreement value – it is collected separately as a tax on top of the flat’s price. The total cost a buyer pays to the developer for an under-construction flat is the agreement value plus five percent GST (or one percent for affordable housing) plus any other development charges specified in the agreement. Separately, the buyer pays stamp duty and registration fee to the government at the time of registration. The total acquisition cost must therefore include all these components in the financial planning.

Q6. How is GST calculated when the payment is in instalments?

GST is calculated and collected on each instalment payment at the applicable rate. For each instalment, the developer must issue a tax invoice showing the instalment amount, the GST amount at the applicable rate and the developer’s GSTIN. The buyer should retain all tax invoices as evidence of the GST paid. The GST on each instalment is due when the instalment becomes due under the payment schedule in the sale agreement – not when the payment is actually made.

Q7. What if the developer is registered under the old GST scheme with ITC and charges a different rate?

Some developers who had ongoing projects in April 2019 were given the option to continue under the old GST scheme (with ITC at 12% for non-affordable and 8% for affordable housing) or migrate to the new scheme (without ITC at 5% and 1%). Developers who opted to continue under the old scheme for specific ongoing projects may charge the old rates for those projects. A buyer must confirm which scheme the developer is on for the specific project and whether the rate charged is consistent with that scheme.

Q8. Does the home loan include the GST component?

Most home loan banks sanction loans on the agreement value rather than on the agreement value plus GST. The GST component is typically expected to be funded by the buyer from their own sources. Some banks include GST in the overall project cost for the purpose of calculating the loan-to-value ratio – but the loan disbursal is typically linked to the construction milestones rather than to the GST payments. Buyers should confirm with their bank whether GST is included in the loan amount and plan accordingly.

Q9. Is GST payable on the stamp duty and registration fee for the flat?

Stamp duty and registration fee are government levies that are not subject to GST. GST applies to the construction services component of the flat’s sale – not to the stamp duty or registration fee. The stamp duty and registration fee are calculated separately on the higher of the guideline value or the agreement value and are paid directly to the government at the time of registration. They are not part of the GST calculation and the developer does not collect or remit stamp duty or registration fee through the GST system.

Q10. How does Legal Brigade advise on GST compliance for under-construction flat purchases?

Legal Brigade works with a CA on every under-construction flat purchase to confirm the applicable GST rate for the specific flat, verify the developer’s GSTIN and return filing status, confirm the OC position at the time of the sale agreement and review the tax invoices for compliance. Legal Brigade’s engagement for under-construction flat purchases always includes CA coordination on the GST position as part of the complete transaction advisory – because the GST compliance affects both the buyer’s total acquisition cost and the developer’s regulatory standing.

Buying an under-construction flat in Bangalore and uncertain about the GST rate, the developer’s GST compliance or whether GST applies at all? Legal Brigade works with a CA to confirm the GST position before you sign the agreement and pay any amount.

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Frequently Asked Questions