GST on Ready-to-Move vs Under-Construction Properties: A Complete Tax Guide
Introduction
Buying a property is one of the most significant financial milestones for salaried individuals and small business owners in India. While you focus on location, amenities, and price, a crucial factor often overlooked is the tax implication, specifically the Goods and Services Tax (GST). The tax treatment varies drastically when comparing ready-to-move vs under-construction properties, directly impacting your overall budget and financial planning. Understanding these nuances is not just about compliance; it’s about making an informed investment decision that saves you a substantial amount of money. This guide will break down the GST rules, tax benefits, and other financial considerations to help you make a financially savvy decision. We will cover the core differences in ready-to-move properties tax implications India versus under-construction properties tax implications India, ensuring you have all the information you need at your fingertips.
What is a Ready-to-Move (RTM) Property?
Defining a Ready-to-Move Property
A ready-to-move (RTM) property, as the name suggests, is a residential unit that is fully complete and ready for immediate occupation. The key legal determinant for a property to be classified as RTM is the issuance of a Completion Certificate (CC) or an Occupancy Certificate (OC) by the competent local authority, such as the municipal corporation. The CC certifies that the building has been constructed according to the approved plans and meets all regulatory standards. The OC, on the other hand, confirms that the building is fit for habitation and has provisions for basic utilities like water, sanitation, and electricity. When you buy an RTM property, the transaction involves the transfer of an existing asset, and you can take possession as soon as the sale deed is executed and registered in your name.
GST Implications for Ready-to-Move Properties
Here lies the most significant financial advantage of an RTM property: there is absolutely NO GST applicable on its purchase. This is a critical point that directly impacts the final cost you pay. According to Schedule III of the Central Goods and Services Tax (CGST) Act, 2017, the sale of land and, subject to clause (b) of paragraph 5 of Schedule II, the sale of a building are activities that shall be treated neither as a supply of goods nor a supply of services. Since an RTM property has already received its Completion Certificate, its sale is considered a transaction involving immovable property, placing it outside the purview of GST. This exemption is one of the most compelling tax benefits for ready-to-move properties India, making the pricing structure straightforward and free from indirect tax burdens for the buyer.
What is an Under-Construction Property?
Defining an Under-Construction Property
An under-construction property is a residential or commercial unit that is still in the process of being built at the time of its sale. Legally, any property for which the Completion Certificate has not been issued is classified as under-construction. When you purchase such a property, you are not just buying the unit itself; you are essentially entering into an agreement with the builder or developer for construction-related services. The payment structure for these properties is typically linked to the progress of construction, with buyers making payments in installments at various milestones, such as the completion of the foundation, casting of different floors, or plastering work. This arrangement is formally documented through an “Agreement for Sale” between the buyer and the developer.
GST on Under-Construction Properties: Rates and Rules
Unlike RTM properties, the sale of an under-construction property is considered a “supply of service” by the developer to the buyer and is therefore subject to GST. This is a fundamental aspect of under-construction properties tax implications India that every potential buyer must factor into their budget. The applicable GST rates vary based on whether the property falls into the affordable housing category.
- 5% GST: This rate applies to residential properties that are not classified as affordable housing. The tax is levied on the total value of the property.
- 1% GST: This concessional rate is applicable to residential properties that meet the government’s criteria for affordable housing.
A crucial caveat here is the treatment of Input Tax Credit (ITC). The GST rates of 1% and 5% are applicable on the condition that the builder does not claim ITC on the goods and services used for construction, such as cement, steel, and contractor fees. For more details on this, you can read our guide on ITC on Construction of Immovable Property: Legal Perspectives. While this simplifies the tax calculation for the end consumer, it’s important to understand that the unclaimable tax cost for the builder is often factored into the base price of the property itself.
To qualify as Affordable Housing, a property must meet both of the following criteria:
- Value: The gross value of the unit should not exceed ₹45 lakhs.
- Carpet Area: The carpet area should be up to 60 square meters in metropolitan cities (defined as Delhi NCR, Mumbai Metropolitan Region, Kolkata, Chennai, Hyderabad, and Bengaluru) or up to 90 square meters in any other city or town in India.
The specific rules are further explained in our detailed guide on GST On Affordable Housing and Non Affordable Housing. For the most current information, buyers should always refer to the latest notifications on the Central Board of Indirect Taxes and Customs (CBIC) website. These tax obligations for under-construction properties India make it essential to calculate the total cost, including GST, before finalizing your purchase.
Detailed Comparison: Ready-to-Move vs Under-Construction Properties Tax Impact
A direct comparison of ready-to-move and under-construction properties India reveals significant differences in their tax treatment, which can influence a buyer’s financial planning and overall expenditure. Beyond the initial price tag, it is the tax liabilities that often create a considerable gap in the final cost of acquiring the property. This section provides a detailed breakdown of the key tax differences, helping you understand the complete financial picture.
Head-to-Head: GST Liability
The most immediate and impactful difference is the applicability of GST. As established, RTM properties are GST-exempt, whereas under-construction properties attract GST. This adds a direct cost to the purchase of an under-construction home, which can amount to several lakhs depending on the property’s value. The table below illustrates this difference with a clear example.
| Feature | Ready-to-Move Property | Under-Construction Property |
|---|---|---|
| GST Applicable | No | Yes |
| GST Rate | 0% | 1% (Affordable) or 5% (Non-Affordable) |
| Example (₹60 Lakh Property) | Total Cost = ₹60 Lakhs | Total Cost = ₹60 Lakhs + 5% GST (₹3 Lakhs) = ₹63 Lakhs |
Stamp Duty and Registration Charges
Stamp Duty and Registration Charges are mandatory state-level taxes that are applicable to both ready-to-move and under-construction properties. These charges are levied by state governments to validate the registration of the property title in the buyer’s name. It is crucial to note that the construction status of the property does not influence these charges. The amount payable is calculated as a percentage of the property’s market value (also known as the circle rate or ready reckoner rate) or the agreement value, whichever is higher. These rates vary from state to state, typically ranging from 3% to 8%. Therefore, whether you choose a new or an old property, this is a significant expense that must be budgeted for separately from the property’s cost and GST.
Income Tax Benefits: A Crucial Difference
For individuals financing their property purchase with a home loan, the timing of income tax benefits is a crucial element in the ready-to-move vs under-construction property tax India debate. The Income Tax Act provides significant deductions for home loan borrowers, primarily under Section 80C for principal repayment (up to ₹1.5 lakh per year) and Section 24(b) for interest payment (up to ₹2 lakh per year for a self-occupied property). For a detailed understanding of the latter, refer to our guide on Section 24(b): Tax Deductions on Home Loan Interest Payments.
- Ready-to-Move: When you buy an RTM property, you can start claiming these tax benefits from the very same financial year in which you take possession and the loan disbursements begin. This provides immediate financial relief by reducing your taxable income.
- Under-Construction: The rules are different here. You can only begin claiming deductions under both sections after the construction is complete and you have taken legal possession of the property. The interest paid during the entire pre-construction period (from the date of loan disbursement until the end of the financial year prior to the year of possession) can be claimed as a deduction in five equal annual installments, starting from the year you take possession. This delay in availing tax benefits can have a notable impact on your cash flow during the construction phase.
For detailed rules and conditions, it is always advisable to consult the official Income Tax Department website.
Conclusion: Making the Right Choice for Your Finances
To summarize the ready-to-move vs under-construction properties debate from a financial perspective, the most significant tax differentiator is the Goods and Services Tax. Ready-to-move properties are completely GST-free, which makes their final cost more predictable and transparent. In contrast, under-construction properties attract a 1% or 5% GST levy, adding a substantial amount to the total purchase price. This distinction is paramount for buyers trying to manage their budgets effectively and avoid unexpected costs down the line.
Ultimately, the right choice depends on your individual financial situation, risk appetite, and long-term goals. Buyers must look beyond the base price and perform a comprehensive cost-benefit analysis. Calculate the total outflow, which includes not only the base price and GST but also stamp duty, registration fees, and potential rent payments you might have to make while your under-construction home is being built. For salaried individuals, the delayed access to income tax benefits on an under-construction property is another critical factor that can affect yearly savings. By weighing these financial aspects carefully, you can make an informed decision that aligns with your wealth-creation journey.
Navigating property tax laws can be complex. To ensure your investment is financially sound and fully compliant, it’s wise to seek professional advice. Contact TaxRobo’s experts today for personalized guidance on property tax planning and financial services.
Frequently Asked Questions (FAQ)
Q1: If I buy an under-construction flat and the builder gets the Completion Certificate before I have paid all my installments, do I still have to pay GST?
Yes. The applicability of GST is determined at the time you enter into the agreement for sale. If the Completion Certificate was not issued at the point of signing the agreement, the transaction is classified as a supply of service. Therefore, GST is levied on the entire value of the property as per the agreement, including installments paid after the issuance of the CC.
Q2: Is GST applicable on resale properties?
No. A resale property is, by definition, a ready-to-move property for which the Completion Certificate has already been issued and it has been previously occupied. The sale of such a property is a transaction between two individuals and is considered a transfer of immovable property, which is outside the scope of GST.
Q3: Do I pay GST on extra charges like PLC, parking, and club membership for an under-construction property?
Yes. GST is levied on the total “consideration” received by the builder. This includes the base price of the apartment as well as any additional amounts charged for amenities and facilities. Therefore, charges like Preferential Location Charges (PLC), fees for car parking rights, club membership, and internal/external development charges are all part of the total value and are subject to the same GST rate (1% or 5%) as the main property.
Q4: Can a small business owner claim ITC on the GST paid for an under-construction commercial property?
Yes. This is a key difference for business owners. While builders cannot claim Input Tax Credit (ITC) for constructing residential properties sold to end-users, the rules differ for commercial properties. If a registered business purchases an under-construction commercial property (like an office or a shop) for the furtherance of their business, they may be eligible to claim ITC on the GST paid. This is subject to fulfilling all the conditions specified in the GST law, such as possessing a valid tax invoice and using the property for taxable business supplies.
