The Goods and Services Tax (GST) has been one of the most significant tax reforms in India, transforming the country’s indirect tax system. Introduced in 2017, GST replaced multiple indirect taxes, simplifying the tax structure and bringing uniformity across states. The real estate sector, which significantly contributes to India’s GDP, has seen substantial changes due to GST. As we move into 2025, homebuyers need to understand the evolving implications of GST on the real estate market.
This article explores the impact of GST on the Indian real estate sector in 2025, highlighting key aspects for homebuyers.
Understanding GST in Real Estate
Before delving into the current and future impact, let’s understand how GST applies to real estate.
Under Construction Properties
GST applies to properties that are under construction. In 2019, the government revised the GST rates to 5% for non-affordable housing and 1% for affordable housing without Input Tax Credit (ITC).
Completed/Ready-to-Move-In Properties
Properties with a completion certificate are exempt from GST.
GST On Land/Plot Purchase
GST does not apply to the sale of land/plot.
GST Rates in 2025: Anticipated Changes
While the basic structure remains the same, there are speculations about potential rate adjustments and policy updates in 2025. The government may consider fine-tuning GST slabs to boost affordable housing and align with market demands.
Affordable Housing
- Current rate: 1% without ITC.
- Expected: The government might introduce incentives to promote affordable housing.
Luxury and Premium Housing
- Current rate: 5% without ITC.
- Expected: Stability is anticipated, but developers might advocate for ITC reintroduction to manage costs.
Commercial Real Estate
- GST on commercial properties remains higher, with a 12% rate if under construction.
Impact of GST on Real Estate
The introduction of GST brought transparency but also raised concerns about property prices. Let’s break down its effects:
Affordable Housing Growth
The reduced GST rate for affordable housing has spurred growth in this segment. In 2025, continued support for this category may lead to sustained demand.
Cost Implications for Developers
Without ITC, developers cannot claim tax credits on inputs like cement and steel, increasing construction costs. This cost is often transferred to buyers.
Luxury Housing
The 5% GST rate without ITC can inflate prices in the luxury segment, as developers pass on the cost of materials.
Simplified Tax Structure
Earlier, homebuyers paid VAT, service tax, stamp duty, and registration fees. GST replaced most of these with a single tax, simplifying calculations.
Cost Implications
For under-construction properties, GST increased the effective cost initially, but streamlined rates later reduced this.
Ready-to-move properties remain outside GST’s purview, as completion certificates are exempt.
Affordable Housing Boost
The 1% GST for affordable housing spurred demand for budget-friendly homes.
Input Tax Credit (ITC) Challenges
Removal of ITC for residential projects made developers rethink pricing strategies, impacting margins.
Commercial Real Estate Growth
Commercial properties, with 12% GST and ITC benefits, attracted more investors.
Construction Sector Dynamics
GST on cement (28%) and other materials increased raw material costs, influencing project expenses.
How to calculate GST on flat purchase?
Formula: GST = Property Value × GST Rate
Example:
- Flat value: ₹50 lakh
- GST rate: 5% (under-construction)
Calculation: ₹50,00,000 × 5% = ₹2,50,000
How to avoid GST on Flat Purchase?
In India, Goods and Services Tax (GST) applies to the purchase of under-construction properties but not on completed or ready-to-move-in properties.
Here’s a breakdown of how you can legally avoid paying GST on a flat purchase, with relevant laws and examples:
Buy a Ready-to-Move-In Property (No GST)
As per Notification No. 11/2017 – Central Tax (Rate) dated 28th June 2017, GST is only applicable to properties classified as “works contract” (under-construction properties). 0% GST for completed properties with an Occupancy Certificate (OC) issued by the local municipal authority.
Example: If you buy a flat with an OC, even if it’s a brand-new property, you won’t pay GST.
Purchase from an Individual Seller (Secondary Market/Resale)
GST applies only to the supply of goods and services, not the sale of immovable property by an individual. As per Schedule III of the CGST Act, resale properties are exempt from GST.
Example: Buying a resale flat from a person who already owns the property does not attract GST, regardless of its construction stage.
Opt for Affordable Housing Projects (Lower GST Rate)
As per Notification No. 03/2019 – Central Tax (Rate) dated 29th March 2019, 1% GST for affordable housing (units costing up to ₹45 lakh and with a carpet area of 60 sq. m in metros or 90 sq. m in non-metros).
Example: If you buy a ₹40 lakh flat in a Tier-2 city under the PMAY scheme, you pay only 1% GST, which is significantly lower.
Invest in Properties from Government Housing Schemes
GST exemptions or concessions are often granted to government-initiated housing schemes under various notifications (e.g., PMAY, JNNURM).
Example: Flats sold under Pradhan Mantri Awas Yojana (PMAY) attract concessional GST rates, or even exemptions, depending on the scheme.
Purchase Land with Construction Contract Separately (Subject to Tax Planning)
GST applies only to construction services and not to the sale of land (as per Schedule III of the CGST Act). Some developers offer two separate agreements—one for land and one for construction. GST applies only to the construction portion.
Example: If you buy a plot for ₹30 lakh and enter a separate contract for construction at ₹20 lakh, GST applies only to ₹20 lakh, reducing your overall GST outflow.
Is GST applicable on sale of land and building?
In India, GST is not applicable on the sale of land and completed buildings. The GST framework specifically excludes these transactions from its scope, as they are considered immovable properties rather than goods or services.
Legal Basis:
- Section 7(2)(a) of the CGST Act, 2017: Activities relating to the sale of land and completed buildings fall under Schedule III, which lists activities not treated as a supply of goods or services.
- Schedule III of the CGST Act:
- Sale of land – No GST
- Sale of a building where the completion certificate has been issued – No GST
When is GST Applicable?
GST is applicable only when you purchase an under-construction property. This is treated as a works contract under GST law.
- Under-construction property GST rates:
- 5% – Non-affordable residential properties (without ITC)
- 1% – Affordable housing projects (without ITC)
- 12% – Commercial properties (with ITC)
Examples:
- Buying Land:
- Ramesh buys a plot of land for ₹50 lakh.
- GST: ₹0 (exempted as per Schedule III).
- Buying a Ready-to-Move-In Flat:
- Sita buys a completed flat with an Occupancy Certificate (OC).
- GST: ₹0 (exempted as it is a completed building).
- Buying an Under-Construction Flat:
- Aman buys a flat in a new residential project still under construction.
- Property value: ₹60 lakh (non-affordable category)
- GST: 5% of ₹60 lakh = ₹3 lakh.
In India, GST is not applicable on the sale of land and completed buildings. The GST framework specifically excludes these transactions from its scope, as they are considered immovable properties rather than goods or services.
Legal Basis:
- Section 7(2)(a) of the CGST Act, 2017: Activities relating to the sale of land and completed buildings fall under Schedule III, which lists activities not treated as a supply of goods or services.
- Schedule III of the CGST Act:
- Sale of land – No GST
- Sale of a building where the completion certificate has been issued – No GST
When is GST Applicable?
GST is applicable only when you purchase an under-construction property. This is treated as a works contract under GST law.
- Under-construction property GST rates:
- 5% – Non-affordable residential properties (without ITC)
- 1% – Affordable housing projects (without ITC)
- 12% – Commercial properties (with ITC)
Examples:
- Buying Land:
- Ramesh buys a plot of land for ₹50 lakh.
- GST: ₹0 (exempted as per Schedule III).
- Buying a Ready-to-Move-In Flat:
- Sita buys a completed flat with an Occupancy Certificate (OC).
- GST: ₹0 (exempted as it is a completed building).
- Buying an Under-Construction Flat:
- Aman buys a flat in a new residential project still under construction.
- Property value: ₹60 lakh (non-affordable category)
- GST: 5% of ₹60 lakh = ₹3 lakh.
GST and Homebuyer Sentiment
GST’s impact on homebuyer sentiment has evolved since its implementation. Key factors influencing sentiment in 2025 include:
- Transparency and Trust: GST has increased transparency in property transactions, boosting buyer confidence.
- Cost Perception: The perception of increased costs due to the absence of ITC still affects buyer sentiment, especially in mid-segment housing.
- Market Trends: The rise of affordable housing indicates a shift in buyer preferences, influenced by GST benefits.
Key Considerations for Homebuyers in 2025
- Project Status: Identify whether the property is under construction or completed.
- GST Calculation: Understand how GST is calculated and factored into the final price.
- Builder Credibility: Choose developers with a transparent GST compliance record.
- Government Announcements: Stay updated on potential GST rate revisions and housing schemes.
Read More: Income Tax Benefit on Home Loan: Section 24 Explained
