GST for Real Estate Developers

A promoter selling flats off-plan meets GST at every stage of a project. There is the land deal, the rate on each instalment from buyers, the share of purchases bought from unregistered suppliers, and the day the completion certificate arrives. Since 1 April 2019 most of these turn on one notification entry. That entry trades input tax credit for a low rate and attaches several conditions. Each condition carries its own annual or end-of-project calculation.

This guide sets out that scheme as it stands on 18 October 2026: the rates, the residential and commercial split, the 80 per cent purchase rule, development rights and long leases, and the completion point. Whether construction is a supply at all is explained in Supply: the Taxable Event. The general law on blocked and reversed credit is in Blocked Credits and Common Credit, Step by Step.

Construction for sale is a service until completion

Paragraph 5(b) of Schedule II to the CGST Act treats construction of a building “intended for sale to a buyer, wholly or partly” as a supply of services. It does not do so where the entire consideration is received after the completion certificate or first occupation, whichever is earlier. Paragraph 5 of Schedule III lists “sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building” as neither goods nor services. A flat sold before completion, with any instalment received before that date, is taxable. A flat sold and paid for wholly after it is outside GST. That boundary drives the credit reversal described below. The charging provision is section 9.

The rates under entry 3 of Notification 11/2017

Notification No. 11/2017-Central Tax (Rate), serial number 3, sets the central tax rate for construction services. Items (i) to (if) were substituted by Notification No. 03/2019-Central Tax (Rate) from 1 April 2019. The central tax rates (the same again is State tax, or double as integrated tax) are:

Item	Supply	Central tax	Total GST
(i)	Affordable residential apartments in a Residential Real Estate Project (RREP)	0.75 per cent	1.5 per cent
(ia)	Residential apartments other than affordable, in an RREP	3.75 per cent	7.5 per cent
(ib)	Commercial apartments (shops, offices, godowns) in an RREP	3.75 per cent	7.5 per cent
(ic)	Affordable residential apartments in a Real Estate Project (REP) other than an RREP	0.75 per cent	1.5 per cent
(id)	Residential apartments other than affordable, in an REP other than an RREP	3.75 per cent	7.5 per cent
(ie)	Apartments in an ongoing project under the old affordable-housing schemes, where the promoter opted to stay on the old rates	6 per cent	12 per cent
(if)	Other construction for sale, including commercial apartments in an REP other than an RREP, and ongoing projects that opted for the old rates	9 per cent	18 per cent

These are rates on the total amount, which includes land. Paragraph 2 of the notification deems the value of land “to be one third of the total amount charged”, and the rate applies to the remaining two-thirds. The rates of 1.5 and 7.5 per cent therefore work out at 1 and 5 per cent of the price. Rates of 12 and 18 per cent work out at 8 and 12 per cent.

The 2025 rate rationalisation did not change these items. Notification No. 15/2025-Central Tax (Rate), in force from 22 September 2025, amended serial number 3 only at items (vii), (viii) and (x), which are works contracts (see Works Contracts). Items (i) to (if) still carry the rates fixed in 2019. What did change in 2025 is the rate on cement. That affects the reverse charge on cement described below.

The definitions that sort a project

Paragraph 4 of the notification, as inserted by Notification 03/2019, defines the terms. Promoter, apartment, carpet area and Real Estate Project take their meaning from the Real Estate (Regulation and Development) Act, 2016.

• An RREP is “a REP in which the carpet area of the commercial apartments is not more than 15 per cent. of the total carpet area of all the apartments in the REP”. Above that share, the project is an REP other than an RREP. Its commercial units go to item (if) at 18 per cent with credit.
• An affordable residential apartment has a carpet area not exceeding 60 square metres in metropolitan cities, or 90 square metres elsewhere, and a gross amount charged of not more than Rs 45 lakh. The metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon and Faridabad), Hyderabad, Kolkata and Mumbai (the whole of MMR). The gross amount includes land, preferential location, parking and similar charges.
• A residential apartment is one “intended for residential use as declared to the Real Estate Regulatory Authority or to competent authority”. A commercial apartment is any other apartment.
• An ongoing project had a commencement certificate and started construction by 31 March 2019, had no completion certificate or first occupation by then, and had some bookings by then. Such projects had a one-time option in Annexure IV to keep the old rates (items (ie) and (if)). The last date was extended to 20 May 2019 by Notification No. 10/2019-Central Tax (Rate). A promoter who did not file was deemed to have chosen the new rates.

The price of the low rate: no credit, cash only

The conditions in column (5) against items (i) to (id) are the same for each item. Central tax at those rates “shall be paid in cash, that is, by debiting the electronic cash ledger only”. Credit of input tax “has not been taken”, except as the transition annexures allowed in 2019. Explanation (iv) in paragraph 4 gives that condition its working meaning. Credit on inputs used only for these supplies is not taken. Credit on inputs used partly for them and partly for other supplies is reversed “as if supply of such service is an exempt supply”, under section 17(2) and its rules. A project that sells residential units at 7.5 per cent and commercial units at 18 per cent therefore apportions its common credit as if the residential units were exempt.

Explanation 3 to the conditions requires credit not availed to be reported every month as ineligible credit in GSTR-3B, “[Row No. 4 (D)(2)]”. That row was later renamed. Since the GSTR-3B changes of 2022 it is described as “ineligible ITC under section 16(4) and ITC restricted due to PoS provisions” (see Reporting Credit in GSTR-3B). The notification’s cross-reference was not updated, and no CBIC circular or GSTN advisory found as at October 2026 says where a promoter now reports the credit it forgoes under items (i) to (id).

Eighty per cent from registered suppliers

The column (5) conditions then require that “eighty percent of value of input and input services … used in supplying the service shall be received from registered supplier only”. The count leaves out:

• development rights, long term lease of land (against an upfront payment) and FSI
• electricity, high speed diesel, motor spirit and natural gas

Inputs on which the promoter paid tax under reverse charge count as purchased from a registered person.

The count is made per project and per financial year, or for the part of the year up to the completion certificate or first occupation. Where purchases from registered suppliers fall short of 80 per cent, the promoter pays tax “on value of input and input services comprising such shortfall” under reverse charge. The notification originally said 18 per cent. A corrigendum of 25 April 2019 makes it central tax at nine per cent, so 18 per cent in all. Notification No. 07/2019-Central Tax (Rate), issued under section 9(4), names the promoter as the person liable. It covers three things: the shortfall, cement, and capital goods supplied to a project taxed under items (i) to (id).

Cement is treated separately. Cement bought from an unregistered person is taxed “at the applicable rates on reverse charge basis”, and the tax is paid “in the month in which cement is received”. From 1 October 2019, Notification No. 24/2019-Central Tax (Rate) removed from that entry the words limiting it to the shortfall. All cement bought from an unregistered supplier is now taxed under reverse charge, whether or not the 80 per cent threshold is met. The applicable rate is the rate on cement. Under Notification No. 09/2025-Central Tax (Rate), Portland and similar cements of heading 2523 are at serial number 9 of Schedule II, which is 9 per cent central tax. The cement rate has therefore been 18 per cent in all since 22 September 2025, in place of the earlier 28 per cent. Serial number 638 of the same Schedule puts other goods (except capital goods and cement) bought by a promoter from an unregistered person under section 9(4) at 18 per cent in all.

Annexure III to Notification 03/2019 gives three worked illustrations:

• 80 per cent is bought from registered suppliers, but the cement is not. Tax is paid on the cement only.
• 80 per cent is bought from registered suppliers, including cement. Nothing is payable, even though paint and windows came from unregistered suppliers.
• Only 50 per cent is bought from registered suppliers, and cement is 15 per cent of the purchases. The cement is taxed at its own rate. The remaining 15 per cent of shortfall is taxed at 18 per cent.

The annual statement and when the shortfall tax is paid

Explanation 1 to the conditions sets out the annual exercise:

The promoter shall maintain project wise account of inward supplies from registered and unregistered supplier and calculate tax payments on the shortfall at the end of the financial year and shall submit the same in the prescribed form electronically on the common portal by end of the quarter following the financial year.

The tax on the shortfall “shall be added to his output tax liability in the month not later than the month of June following the end of the financial year”. Cement tax is paid monthly as received. Tax under reverse charge is paid in cash and reported in GSTR-3B table 3.1(d). Credit of it is then available only to the extent the supply it relates to is taxable with credit, which for items (i) to (id) it is not. Explanation 1 also requires a project-wise statement of the shortfall “in the prescribed form electronically on the common portal”, but no such form has been prescribed in the CGST Rules or their forms annexure as at October 2026, and no official source describes how the shortfall payment is to be shown.

Development rights, FSI and long-term leases

Three 2019 notifications deal with land. Each took effect on 1 April 2019.

1. Reverse charge. Notification No. 05/2019-Central Tax (Rate) added serial numbers 5B and 5C to Notification 13/2017. Under 5B, the promoter pays tax on transfer of development rights or FSI (including additional FSI) “by any person”. Under 5C, it pays tax on long term lease of land (30 years or more) “against consideration in the form of upfront amount … and/or periodic rent”. The Reverse Charge for Businesses guide covers the reverse charge mechanics.
2. Exemption for the residential share. Notification No. 04/2019-Central Tax (Rate) inserted entries 41A and 41B in Notification 12/2017. They exempt TDR or FSI, and the upfront amount for a lease of 30 years or more, used “for construction of residential apartments by a promoter in a project, intended for sale”. The exempt share is the tax on the whole amount multiplied by residential carpet area over total carpet area. The commercial share is taxable. The exemption is clawed back for residential apartments “which remain un-booked” on the completion certificate or first occupation, in proportion to their carpet area. That tax is capped at 0.5 per cent of the value of affordable apartments, and 2.5 per cent of others, remaining unbooked. Entry 41, older and separate, exempts the upfront amount for 30-year leases of industrial plots by State industrial development corporations.
3. Time of supply. Notification No. 06/2019-Central Tax (Rate), issued under section 148, postpones the liability on development rights or FSI and on these leases to “the date of issuance of completion certificate for the project … or on its first occupation, whichever is earlier”. It applies both to development rights paid for in constructed apartments and to the promoter’s construction service given in exchange for them.

Valuation follows the exchange. Paragraph 1A of Notification 12/2017 values development rights given in exchange for apartments at the price of similar apartments sold to independent buyers nearest the date of transfer. Paragraph 2A of Notification 11/2017 values the construction service on the landowner’s apartments the same way. A landowner-promoter who sells those apartments before completion may take credit of the tax charged by the developer-promoter and, since Notification No. 02/2021-Central Tax (Rate), use it for tax on the apartments it supplies in that project.

The completion certificate: what has to be recalculated

Completion, or first occupation if earlier, triggers four things at once:

• Flats sold afterwards and paid for wholly afterwards fall outside Schedule II, paragraph 5(b).
• The tax on development rights, FSI and leases falls due under Notification 06/2019, including the claw-back for unbooked residential area.
• The 80 per cent count closes for the project.
• Credit is reversed for the unsold area.

The credit reversal is in rule 42 and rule 43, as amended by Notification No. 16/2019-Central Tax. During construction, credit cannot be attributed to taxable flats alone. The Explanation to rule 42(1)(f) says the value of T4 “shall be zero during the construction phase”, because inputs serve flats booked before completion and flats not booked by then. Rule 43(1)(b) says the same for capital goods. Common credit is apportioned project by project using carpet area. E counts the area exempt from tax, plus area “identified by the promoter to be sold after issue of completion certificate or first occupation”. F is the total area of the project. Explanation 1 adds that, in the tax period of completion, E “shall also include aggregate carpet area of the apartments, which have not been booked” by then.

Rule 42(3) then requires a final calculation for each project for the whole period, from commencement or 1 July 2017 to completion. In that calculation E is the exempt area plus the area unbooked at completion. It is made before the due date of the September return following the end of the financial year in which completion occurs. Any excess reversal is paid through GSTR-3B or DRC-03, with interest under section 50(1) from 1 April of the next year. Any shortfall is claimed as credit by the same September return.

Rule 42(4) has a separate formula for the commercial portion of REPs that went through the 2019 transition. Rule 42(5) excuses RREPs that went through it from the final calculation. Rule 43(2) makes the corresponding final calculation for capital goods. Rule 42 does not define “booked”. The nearest definition is in paragraph 3 of Notification 12/2017, inserted by Notification 04/2019 for the TDR and lease entries. An apartment counts as “booked on or before the date of issuance of completion certificate or first occupation” only if three things happened by then: part of its supply had a time of supply, at least one instalment was credited to the promoter’s bank account, and an allotment letter, sale agreement or similar document was issued.

What to have ready

Item	Where it comes from
RERA registration, sanctioned plan and carpet area of every apartment, residential and commercial	Promoter’s RERA filings
Commencement certificate and, later, completion certificate or evidence of first occupation	Competent authority
Booking register showing, for each unit, allotment date, first instalment credited and invoices	Books
Project-wise register of purchases, split registered and unregistered, excluding land, FSI, electricity and fuels	Books, GSTR-2B
Cement purchases from unregistered suppliers, by month	Books
Development agreements, FSI purchases and lease deeds, with values of comparable flats	Agreements, sales records
Monthly rule 42 and 43 calculations by project	Books, GSTR-3B table 4(B)

Consequences, and what can be put right

Tax under reverse charge on the shortfall or on cement that is not paid on time is short payment. It is recoverable under section 73 or section 74 for periods up to 2023-24, and under section 74A from 2024-25 (see Notices and Demands). Interest runs under section 50(1). Credit taken on a project taxed at 1.5 or 7.5 per cent breaks the condition of the rate. Explanation 2 to rule 42’s proviso treats those apartments as exempt for apportionment. Credit not reversed by the September after completion carries interest from the following 1 April. Where a figure is found to be wrong before a notice issues, it may be paid with DRC-03 (Before a Notice: DRC-01A and Paying Voluntarily). Reporting errors in returns are corrected as in Correcting Mistakes in Returns.

The procedure, in order

1. Classify the project as an RREP or other REP by commercial carpet area against the 15 per cent line, and each apartment as affordable or not.
2. Charge 1.5 or 7.5 per cent (or 18 per cent for commercial units in an REP that is not an RREP) on each instalment, valued after the one-third land deduction, and pay it in cash.
3. Take no credit for those supplies. Apportion common credit monthly by carpet area under rules 42 and 43, with T4 at zero during construction.
4. Pay reverse charge on cement from unregistered suppliers each month, at the cement rate, now 18 per cent.
5. At each year end, count purchases from registered suppliers project by project, pay 18 per cent on any shortfall below 80 per cent by the June return, and file the annual statement.
6. Record development rights, FSI and long leases. On completion, pay reverse charge on the commercial share and on the share for residential area still unbooked, within the caps.
7. On completion or first occupation, make the final rule 42 and 43 calculation by the September return of the following year, and pay any excess with interest.

The next guide in this set, Works Contracts, deals with contractors who build for others rather than for sale.