Real estate has never fitted neatly into India's indirect-tax framework. A project that appears, commercially, to involve nothing more than the development and sale of property may, from a GST perspective, contain several distinct transactions a transfer of development rights by the landowner, construction services by the developer, use of additional Floor Space Index, sale of apartments, collection of infrastructure charges, leasing of commercial areas, and reversal of credit on unsold units at completion.

GST was introduced on 1 July 2017 to replace a complex network of central and State indirect taxes. Nine years later, it has undeniably changed how the real estate industry is taxed but it has not made the sector simple. The complexity has merely shifted: from multiple taxes such as VAT, service tax, works-contract tax and entry tax, to questions of classification, valuation, time of supply, reverse charge and eligibility for input tax credit.

The core difficulty is a single dividing line. Sale of land sits outside GST; construction and several services connected with land do not. Likewise, the sale of a completed building can fall outside GST, while the sale of the same unit during construction is generally taxable.

That line looks clean on paper. It becomes difficult to apply the moment a transaction involves development rights, a Joint Development Agreement, plotted development, redevelopment of an existing property, or a building retained for leasing which is why GST planning must begin before the commercial structure is finalised, not after the JDA is signed or the project is launched.

Before GST, a developer could be affected by State VAT, service tax, works-contract tax, central excise duty embedded in materials, Central Sales Tax and local entry taxes with credit under one law often unusable against liability under another. GST brought most of these into a common framework and introduced a more structured credit mechanism for eligible activities. Stamp duty and registration charges, however, remain outside GST and continue to be governed by State law.

The present real estate rate structure is broadly as follows:

The effective 1%, 5% and 12% rates arise from the notified construction rates read together with the prescribed treatment of the land component.

A Residential Real Estate Project (RREP) is one in which the carpet area of commercial apartments does not exceed 15% of the total carpet area of all apartments a classification that matters because commercial units within an RREP can carry a different GST treatment from a standalone or predominantly commercial project.

Older projects that were already ongoing when the revised real estate regime was introduced in 2019 may be governed by the option the promoter exercised at that time. The current headline rate should never be applied to a project without first checking its commencement date and transitional status.

A Joint Development Agreement is typically negotiated as a commercial sharing arrangement: the landowner contributes land or development potential, while the developer undertakes construction and receives the right to sell an agreed portion of the project. GST does not necessarily treat this as one indivisible arrangement.

In a typical area-sharing JDA, the tax authorities may identify two separate supplies the landowner supplying development rights, FSI or other development entitlement to the developer, and the developer supplying construction services to the landowner by handing over the landowner's agreed share of built-up space.

The absence of a cash payment does not, by itself, make the transaction non-taxable. Consideration under GST can be monetary or non-monetary; constructed area, a revenue entitlement, or another commercial benefit can each constitute consideration.

The notified framework specifically recognises transactions between a landowner-promoter and a developer-promoter. It provides that the developer may be required to pay GST on construction supplied to the landowner, while the landowner may be eligible for credit subject to prescribed conditions when the landowner subsequently sells apartments before completion and discharges the corresponding GST.

Area Sharing and Revenue Sharing Are Not Merely Commercial Choices

Under an area-sharing arrangement, the landowner receives a specified share of constructed apartments. Under a revenue-sharing arrangement, the developer sells the units and pays the landowner an agreed percentage of collections.

A common and unsafe assumption is that revenue sharing avoids GST on development rights because no constructed area changes hands. The tax treatment depends on the actual rights granted to the developer: possession for development, exclusive authority to construct, the right to exploit FSI, the right to market the project, and the authority to enter into sale agreements. None of these rights disappears merely because the landowner's consideration is described as a revenue share. The substance of the arrangement must be examined alongside its wording.

What the Courts Have Said About Development Rights

The judicial position on JDAs and development rights is not uniform.

In Prahitha Constructions Pvt. Ltd. v. Union of India, the Telangana High Court rejected the argument that the JDA amounted to a sale of land, holding that title had not been transferred to the developer, and upheld the GST framework applicable to development rights. The matter subsequently reached the Supreme Court and continued to appear in its listings through 2026; no final judgment settling the issue has been reported as of the date of this article.

The Bombay High Court adopted a narrower approach in Shrinivasa Realcon Pvt. Ltd. v. Deputy Commissioner. On those facts, the Court distinguished a private contractual permission to construct from statutory TDR or FSI under planning law, and quashed the demand because no transfer of the specific kind of statutory TDR or FSI covered by the relevant reverse-charge entry had occurred. This should not be read as a blanket ruling that all private JDAs fall outside GST the outcome turned on the rights created by that particular agreement.

In Shashi Ranjan Constructions Pvt. Ltd. v. Union of India, the Patna High Court dealt with an agreement executed before GST where development and transfer of the landowner's flats continued into the GST period, and upheld both the taxability of construction supplied to the landowner and the broader principle that development rights can attract GST.

The practical lesson: no judgment in this space should be relied upon by its headline alone. Before applying any of these decisions, the following must be compared against the case at hand the wording of the development agreement; whether statutory TDR or FSI is involved; whether title or possession has actually transferred; the nature of the landowner's consideration; the date of the agreement and construction; the project's residential-commercial composition; and the High Court jurisdiction in which the property is located. A favourable judgment on a materially different agreement can offer very little protection during assessment.

One of the most significant GST events in a real estate project is the earlier of the issuance of the completion certificate by the competent authority, or first occupation of the property. Construction intended for sale is generally taxable unless the entire consideration is received after that cut-off.

The word “entire” is critical. If a purchaser pays 10% of the price before completion and the remaining 90% after the completion certificate, it would be incorrect to assume GST applies only to the first 10%. Because part of the consideration was received before completion, the statutory condition entire consideration received afterward is not satisfied, and the transaction continues to be treated as a taxable construction supply, subject to the applicable invoicing and time-of-supply provisions.

A genuinely completed-property sale is different: where the buyer enters the transaction after completion and the developer receives the entire consideration only thereafter, the sale falls outside GST as sale of a building.

This distinction has real documentation consequences. Developers should maintain customer-wise records of booking dates, agreement dates, payment receipts, completion and occupancy certificates, first occupation, possession, cancellations and rebookings, and amounts received before and after the statutory cut-off. First occupation should never be ignored merely because the formal completion certificate arrives later.

Construction of an apartment ordinarily includes an undivided interest in land. Since the sale of land is outside GST, the value attributable to land must be separated from the taxable construction service. The notification generally adopts a deemed mechanism under which one-third of the total amount is treated as attributable to land, with the balance treated as the value of construction.

The commercial difficulty is obvious: land may be a small part of project value in an outer suburban location but a substantial share of price in a high-value urban area. A fixed one-third allocation does not reflect the facts of every project.

The Gujarat High Court considered this in Munjaal Manishbhai Bhatt v. Union of India, holding that mandatory application of the one-third deduction could not be sustained in the same manner where the actual value of land was ascertainable and supported by transaction documents. The Union of India has challenged that ruling before the Supreme Court, and the Special Leave Petition remains pending as of this review so the Gujarat High Court decision has not yet produced nationwide finality.

Developers considering reliance on actual land value should not simply insert a high land figure into the sale agreement. A defensible position requires consistent evidence registered land documents, valuation reports, guideline values, cost records, and agreement terms that genuinely separate land from construction. Artificial allocation of consideration to land can be challenged under GST valuation provisions.

This produced considerable uncertainty in GST's early years. Several advance rulings took the view that where a developer levels land and installs roads, drainage, water lines and electrical infrastructure, the resulting transaction is more than a simple sale of land.

CBIC subsequently clarified the position through Circular No. 177/09/2022-TRU. The circular states that land may be sold in its original condition or after development activities such as levelling and installation of drainage, water and electricity lines; sale of such developed land remains sale of land and does not attract GST, while a separately supplied land-development service remains taxable. Developed plots, in other words, are not automatically taxable merely because basic infrastructure has been completed.

The contractual arrangement still requires review. A transaction may still involve a taxable development service where the plot is conveyed under one agreement and infrastructure supplied under another; where development charges are separately recovered; where ownership transfers only after infrastructure milestones are met; where instalments are expressly linked to development work; where substantial post-sale obligations remain with the developer; or where the purchaser is effectively buying a future development service alongside the land. The sale deed, development agreement, allotment letter and payment schedule should be read together calling an amount “plot consideration” does not conclusively determine its GST treatment.

Real estate pricing rarely consists of only a basic apartment price. Developers may separately collect Preferential Location Charges, floor-rise charges, park-facing or corner-unit premiums, parking charges, clubhouse charges, external development charges, infrastructure charges, maintenance deposits and utility connection charges and each must be analysed on its own legal and commercial character.

Preferential Location Charges

The position on PLC has now been substantially clarified. CBIC Circular No. 234/28/2024-GST states that a purchaser's choice of location is integral to the construction supply, and that PLC paid alongside construction consideration forms part of the composite supply in which construction is the principal supply. PLC should therefore follow the same GST treatment as the underlying construction service it should not ordinarily be treated as an independent 18% service where collected as part of an under-construction sale. The same logic naturally extends to floor-rise premiums, superior-view charges and corner-location premiums forming part of the apartment transaction.

Parking and Clubhouse Charges

These require closer examination. Where parking or common facilities form an inseparable part of the apartment transaction, the amount may form part of the overall construction consideration. A different result may follow where a parking right is separately licensed after completion, supplied to a non-purchaser, or provided by a separate legal entity the agreement of sale, sanctioned plan, RERA documents and the actual nature of the right granted should all point the same way.

External and Infrastructure Development Charges

EDC and IDC are frequently described as reimbursements or pass-through amounts, but that description alone does not exclude them from the value of supply. To be excluded as pure-agent expenditure, the conditions under Rule 33 of the CGST Rules must be satisfied among other requirements, the developer must be authorised to make the payment on the customer's behalf, the amount must be separately indicated, and only the actual amount may be recovered. Where the obligation to pay the charge belongs to the developer as part of obtaining permission or developing the project, the amount may form part of the developer's own supply even where separately recovered. Drafting the customer agreement as a “reimbursement” does not change the underlying liability.

Section 17(5) has been among the most debated GST provisions affecting commercial real estate. It restricts ITC on specified works-contract services and on goods or services used for construction of immovable property on a taxable person's own account, subject to limited exceptions creating a tax-cascading concern where a commercial building is constructed and then leased on payment of GST, with credit denied even as GST is again charged on rental income.

The Safari Retreats Judgment

The Supreme Court examined this in Chief Commissioner of CGST v. Safari Retreats Pvt. Ltd., a case involving a shopping mall constructed to lease premises to tenants. The Court examined the expression “plant or machinery” as it then appeared in Section 17(5)(d) and held that a functionality test could be relevant to whether a building itself qualifies as plant in a given case. It did not hold that every mall, hotel, warehouse or office building constructed for leasing automatically qualifies for ITC the factual question was remanded for determination.

The Retrospective Amendment

The Finance Act, 2025 replaced the words “plant or machinery” with “plant and machinery” in Section 17(5)(d), with retrospective effect from 1 July 2017, and inserted an explanation stating that the expression must be read as “plant and machinery” notwithstanding any contrary judgment, decree or order. This materially restricts routine reliance on Safari Retreats: the denial under clause (d) continues to apply only where construction is “on the taxpayer's own account,” so the on-own-account question still matters, but the plant-versus-building distinction the judgment turned on has been legislatively closed off retrospectively.

A taxpayer should not claim construction ITC merely because the completed property will be used for taxable renting. A detailed asset-level review is required separate consideration may still be appropriate for lifts and escalators, HVAC systems, refrigeration equipment, racking systems, electrical installations, machinery foundations, data-centre equipment, warehouse automation, dismantlable equipment, and civil structures inseparably forming part of the building. A project-wide claim under the broad description “commercial building used for taxable lease” carries substantial litigation risk.

Promoters paying GST under the concessional residential real estate scheme must procure at least 80% of the value of specified inputs and input services from registered suppliers. Certain items are excluded from this computation, including specified development rights, long-term lease of land, FSI, electricity, high-speed diesel, motor spirit and natural gas.

Where registered procurement falls below the prescribed threshold, the promoter must pay GST under reverse charge on the shortfall, generally at 18%. The computation must be maintained project-wise excess registered procurement in one project cannot be used to offset a shortfall in another unrelated project.

This condition is frequently misunderstood because residential promoters under the 1% and 5% schemes are not normally entitled to ITC. The absence of ITC does not make the procurement condition irrelevant; it is an independent compliance obligation.

Cement From an Unregistered Supplier

Cement attracts a separate reverse-charge treatment when procured from an unregistered supplier: the promoter must pay tax at the rate applicable to cement in the month of receipt. The GST rate on cement was reduced from 28% to 18% with effect from 22 September 2025. The applicable RCM rate must therefore be determined with reference to the date of supply and the rate then in force a continuing assumption that every unregistered cement purchase attracts 28% is no longer correct for supplies received on or after that date.

In practice, promoters should maintain a separate project-wise control for registered and unregistered vendors, cement purchases, capital goods, RCM supplies, excluded items, project allocation and the annual shortfall calculation. Reconstructing this information only at year-end usually results in incomplete vendor classification and disputed workings.

A large project may contain residential apartments, commercial units, parking, clubhouses and areas retained for leasing. Input tax credit cannot be evaluated by applying one percentage to the entire project. Credits should first be classified into amounts exclusively attributable to taxable supplies, amounts exclusively attributable to exempt or non-GST supplies, credits blocked under Section 17(5), and common credits requiring proportionate reversal. Rules 42 and 43 may apply where common inputs, services or capital goods serve both taxable and exempt supplies.

The completion certificate is a particularly important adjustment point: apartments sold after completion fall outside GST, so common credit attributable to unsold completed inventory may require reversal under the applicable provisions. A proper completion-stage working should reconcile total carpet area, residential and commercial areas, sold and unsold units, cancellations, taxable and non-taxable supplies, common ITC, capital-goods credit, RERA phases and the relevant completion or first-occupation date. A project's RERA registration structure and its GST accounting structure should also be reconciled they should never be assumed to be identical without examination.

Redevelopment of an existing building or housing society often involves more than a straight replacement of old flats. The arrangement may include surrender or grant of development rights, replacement units for existing members, additional area, corpus payments, transit rent, shifting charges, hardship compensation, additional FSI or statutory TDR, rehabilitation units, commercial components and apartments available for open-market sale.

It is therefore unsafe to state that all flats handed over to existing members are outside GST. The treatment depends on the structure of the arrangement, including whether the developer is supplying construction against development rights, whether additional area is supplied for consideration, whether a specific rehabilitation exemption applies, and whether the society or landowner is treated as a promoter. This analysis should happen before tenders are invited and bids compared a developer quoting a lower project cost has not necessarily found a more efficient structure; it may simply have ignored, or taken an aggressive position on, TDR, construction service or reverse-charge liability.

The redevelopment agreement should clearly allocate responsibility for GST on development rights, GST on construction supplied to members or the landowner, valuation, additional area, unsold units, tax arising at completion, interest and penalties, indemnification, and the consequences of a future change in law or judicial interpretation.

A 30-year, 60-year or 99-year lease may economically resemble ownership, but it remains a lease unless title is legally transferred. GST may arise on the upfront premium, annual lease rent, assignment fees, transfer charges, renewal premium and conversion charges. Specific exemptions exist for certain long-term leases granted by qualifying Government-related entities for industrial or infrastructure purposes, but these are conditional on the lessor's identity, intended use, tenure and compliance with prescribed conditions, and should not be extended to every private long-term lease. Every lease document should be reviewed for GST independently of the stamp-duty treatment the parties have adopted.

For several years, taxpayers facing adverse first-appellate orders had no operational GST Appellate Tribunal before which to file a regular second appeal. The Government has now notified 31 July 2026 as the extended date up to which appeals or applications may be filed before GSTAT for specified legacy orders. For taxpayer appeals, the extension broadly covers orders communicated before 1 May 2026; orders communicated on or after that date fall under the ordinary statutory period under Section 112. This date is not a universal extension for every order each case must be examined by reference to the date of communication, the nature of the order, whether it is an appeal or a departmental application, pre-deposit requirements, condonation eligibility and the relief sought.

On pre-deposit, the current statutory position under Section 112(8) requires an additional pre-deposit of 10% of the disputed tax at the GSTAT stage, over and above the 10% already deposited at the first-appellate stage under Section 107(6) taking the cumulative pre-deposit to 20% of the disputed tax by the time a matter reaches the Tribunal, subject to the prescribed monetary cap. This is a materially lower burden than the erstwhile 20%-plus-10% regime that applied before the Finance (No. 2) Act, 2024 came into force, and developers who have not revisited their appeal-cost estimates since that change should do so.

Real estate businesses holding old adverse appellate orders should review them immediately. Limitation should not be assessed only when the finance team receives a recovery notice.

During GST reviews of real estate businesses, the most significant exposures usually arise from assumptions made at the very beginning of the project. Some recurring examples:

•        Assuming every JDA is exempt because land is involved

•        Assuming every JDA is taxable without examining the rights actually transferred

•        Treating revenue sharing as automatically outside TDR taxation

•        Charging GST only on instalments received before completion

•        Applying the same treatment to commercial units in an RREP and in a standalone commercial project

•        Treating developed plots as taxable despite Circular No. 177/2022

•        Treating developed plots as exempt while separately supplying development services

•        Charging PLC at 18% separately despite Circular No. 234/2024

•        Calling EDC or IDC a reimbursement without satisfying the pure-agent conditions

•        Computing the 80% procurement condition at entity level instead of project level

•        Applying the pre-September-2025 cement rate to supplies received after the rate reduction

•        Claiming full ITC on a building only because taxable rent will be earned

•        Relying on Safari Retreats without considering the retrospective amendment

•        Postponing ITC reversals until the annual return

•        Ignoring first occupation as a trigger date

•        Treating all redevelopment replacement units as non-taxable

•        Relying on an Advance Ruling from another State as though it were binding nationwide

Most of these cannot be corrected merely through a revised return. They arise from agreement drafting, project classification and commercial pricing decisions taken long before the return is filed.

A real estate GST review should begin with the land document and end only after completion-stage reconciliation.

Before acquiring land or signing a JDA

The parties should determine whether the arrangement is a purchase, lease, licence, development agreement or transfer of statutory development rights the difference carries direct GST consequences. The commercial model should quantify GST on the landowner-developer transaction, construction GST on the landowner's share, RCM impact, valuation, tax on unbooked units at completion, ITC eligibility, and the ability of either party to recover the tax contractually.

Before registering and launching the project

The promoter should establish whether the project is an REP or an RREP, calculate the commercial carpet-area percentage, and identify affordable and non-affordable units. The GST rate should be checked against the project commencement date, transitional option, residential-commercial mix, RERA phases, booking structure and anticipated completion date.

Before customer agreements are finalised

The agreement should clearly identify the apartment price and the treatment of PLC, parking, club charges, EDC, IDC, maintenance and utility-related amounts. Payment milestones should be consistent with GST invoicing and time-of-supply requirements artificially postponing part of the price until after completion is not a reliable tax-planning strategy.

During construction

A project-wise vendor and procurement system should track the 80% registered-procurement requirement, cement from unregistered suppliers, RCM liabilities, blocked credits and common credits. GST workings should be reconciled with project accounts and GSTR-2B regularly, not only at the time of audit.

Before completion or first occupation

The promoter should perform a complete project reconciliation covering unsold units, sold units and receipt status, the landowner's share, TDR and FSI consequences, ITC reversal, Rules 42 and 43, RERA data, customer balances and evidence of first occupation. This is the last stage at which exposures can still be identified before they become part of an assessment dispute.

GST in real estate is often discussed as a rate question 1%, 5%, 12% or 18%. In reality, the rate is usually the last part of the analysis. The more important questions are: What rights have been transferred? Who is supplying what, to whom? What is the consideration? When does the supply take place? Is the project residential, commercial or mixed? Is the transaction a sale of land, a construction service, or both? What happens to unsold inventory at completion? Is credit available, blocked or reversible? Has the agreement allocated tax risk correctly?

A transaction may be fully reported in GSTR-1 and GSTR-3B and still carry significant GST exposure because the underlying legal characterisation is wrong. That is why the most effective GST control in real estate is not a return-filing control it is a project-structuring control.

Nine years after GST's introduction, real estate continues to sit at the intersection of land law, construction contracts, indirect taxation and commercial structuring. Some areas have become clearer CBIC has clarified the treatment of developed land and Preferential Location Charges, GSTAT has created a long-awaited appellate pathway, and the rate on cement has been reduced. Other areas remain contested: the taxability of development rights under different JDA structures is still shaped by conflicting High Court approaches, the one-third land deduction remains before the Supreme Court, and the scope of construction-related ITC continues to be debated after Safari Retreats and the retrospective amendment to Section 17(5)(d).

For developers and landowners, the practical response is not to wait for every controversy to be finally settled. The better approach is to ensure that each project has a commercially workable GST structure, an accurately drafted agreement, a defensible valuation, project-wise procurement controls, a documented ITC position, completion-stage reconciliations, and a written legal basis for every material disputed position.

A GST review conducted before a project is launched is almost always far less expensive than defending a demand after the property has been sold and the commercial arrangements can no longer be changed.Planning a new project or reviewing an existing one?

Planning a new project or reviewing an existing one?

T N K & Company, Chartered Accountants assists developers, landowners, promoters and investors with:

•  Pre-launch GST health checks

•  Joint Development Agreement reviews

•  TDR and FSI analysis

•  Area-sharing and revenue-sharing structuring

•  REP and RREP classification

•  Project-wise 80% procurement reviews

•  Input-tax-credit and completion-stage reconciliations

•  Developed-plot and redevelopment advisory

•  Departmental proceedings

•  GSTAT appeal evaluation

Disclaimer

This article is intended for general information and professional education. It does not constitute legal, tax, investment or transactional advice. GST treatment in the real estate sector depends on the project documents, rights transferred, jurisdiction, dates, project classification, customer agreements and applicable notifications. Several issues discussed in this article remain subject to pending litigation or fact-specific judicial interpretation. Readers should obtain professional advice based on the facts of their specific transaction before adopting a tax position.