GST on Under-Construction Property: GST Rates, Calculation with Examples & Latest Rules (2026)
Anurag Sodani • June 30, 2026
If you are considering buying a flat that is still being built, understanding GST on under-construction property is essential before you sign any agreement. Unlike completed properties, under-construction units attract GST because the law treats the purchase as a “supply of construction service” rather than a sale of immovable property. This guide covers the exact rates, step-by-step calculations, and the practical rules every buyer should know in 2026.
Why is GST Applicable Only on Under-Construction Properties?
Under India’s GST framework, the tax applies to the “supply of goods and services” — and constructing a building counts as a service. When you buy an under-construction flat, you pay for an ongoing construction service, which brings the transaction within the scope of GST.
Once the building is complete and the developer obtains a Completion Certificate (CC) or Occupancy Certificate (OC) from the relevant municipal or development authority, the property is reclassified. It is no longer a “service in progress” — it becomes immovable property. Schedule III of the CGST Act, 2017 excludes the sale of completed immovable property (other than under-construction property) from the definition of “supply,” placing such transactions entirely outside the scope of GST.
This is the precise legal reasoning behind why ready-to-move-in homes are GST-free while under-construction ones are not.
Is GST Applicable After Possession?
The date on which the competent authority issues the Completion Certificate (CC) or Occupancy Certificate (OC) relative to your purchase agreement determines whether GST applies, not the date on which you take physical possession of the property.
- If you buy the unit before the competent authority issues the Completion Certificate (CC) or Occupancy Certificate (OC)—even if you take possession shortly afterwards—the law treats your purchase as an under-construction property transaction, and GST applies to every payment you make before the competent authority issues the CC or OC.
- If you buy the unit after the competent authority has already issued the CC or OC, you do not have to pay GST, regardless of when you take physical possession.
This distinction matters because many buyers book a flat during construction, pay GST on the instalments they make before the competent authority issues the CC or OC, and take possession only after the builder completes the construction. In such cases, GST applies only to the payments made before the competent authority issues the CC or OC, while payments made afterwards for the same unit remain outside the scope of GST.
What is the GST Rate on Under-Construction Property?
As of 2026, the GST structure for under-construction residential property is as follows:
| Category | GST Rate | ITC Available |
|---|---|---|
| Affordable housing | 1% | No |
| Non-affordable residential | 5% | No |
| Commercial under-construction | 12% | Yes |
Affordable housing criteria (both must be met):
- Carpet area up to 60 sqm in metro cities, or 90 sqm in non-metro cities
- Total property value up to ₹45 lakh
These rates have applied since April 1, 2019, replacing the earlier structure of 8% (affordable, with ITC) and 12% (non-affordable, with ITC). The GST Council’s 2.0 rate revision, effective September 22, 2025, left residential property GST rates unchanged at 1% and 5% — the restructuring under GST 2.0 primarily affected other goods and services categories, not real estate’s core rate structure.
How to Calculate GST on Under-Construction Property — With Examples
Example 1 — Affordable housing flat:
A buyer purchases a flat for ₹38 lakh in a non-metro city, with a carpet area of 85 sqm — meeting both affordable housing criteria.
- Base price: ₹38,00,000
- GST rate: 1%
- GST amount: ₹38,000
- Total cost: ₹38,38,000
Example 2 — Non-affordable under-construction flat:
A buyer purchases a 2 BHK flat in a metro city for ₹95 lakh, with a carpet area of 75 sqm — exceeding the 60 sqm metro limit for affordable housing.
- Base price: ₹95,00,000
- GST rate: 5%
- GST amount: ₹4,75,000
- Total cost: ₹99,75,000
Example 3 — Instalment-based payment with GST applied per instalment:
Many under-construction purchases are paid in instalments tied to construction milestones. GST applies to each instalment paid before CC/OC issuance.
| Instalment | Amount | GST (5%) | Total |
|---|---|---|---|
| Booking amount | ₹10,00,000 | ₹50,000 | ₹10,50,000 |
| On foundation completion | ₹15,00,000 | ₹75,000 | ₹15,75,000 |
| On slab completion | ₹20,00,000 | ₹1,00,000 | ₹21,00,000 |
| Final instalment (post-CC) | ₹50,00,000 | ₹0 | ₹50,00,000 |
In this example, the final instalment paid after CC/OC issuance attracts no GST, while earlier instalments paid during construction do.
GST Effect on Construction Materials — What Builders Pay
While buyers pay GST on the final flat price, builders separately pay GST on construction inputs, which indirectly shapes overall project costs:
| Material | GST Rate (after September 2025 revision) |
|---|---|
| Cement | 18% (reduced from 28%) |
| Steel/iron products | 18% |
| Bricks | 5% (any type of bricks) |
| Sand and aggregates | 5% |
| Paint and finishing materials | 18% |
The GST 2.0 revision introduced in September 2025 reduced the GST rate on cement from 28% to 18%, providing meaningful cost relief to developers. However, because the government continues to tax residential properties at 1% or 5% without allowing Input Tax Credit (ITC), builders cannot offset the GST they pay on inputs against their GST liability on residential projects. As a result, lower GST on materials such as cement may improve developers’ margins or project viability, but it does not automatically reduce the GST that homebuyers pay.
What is the GST Impact on a New House Purchase?
For most buyers, the practical impact of GST on a new under-construction house purchase comes down to three factors:
1. Upfront cost addition:
GST adds 1% or 5% directly to your purchase price — a meaningful sum on properties above ₹45 lakh.
2. No ITC pass-through:
Since builders cannot claim ITC under the concessional residential rates, any savings on input costs (like the reduced cement GST) are not mandatorily passed on to buyers, though competitive market pressure may influence pricing over time.
3. Comparison incentive toward ready properties:
The GST-free status of ready-to-move-in homes makes them comparatively more cost-effective on a pure tax basis, even if the listed price is marginally higher than an equivalent under-construction unit.
If you are weighing an under-construction purchase against a ready-to-move-in option, run the complete cost comparison — including GST — before deciding, rather than comparing base prices alone.
What is the Difference Between GST and Stamp Duty?
These are frequently confused but are entirely separate levies:
| Aspect | GST | Stamp Duty |
|---|---|---|
| Levied by | Central Government (via GST Council) | State Government |
| Applies to | Under-construction property purchase (as a service) | All property transactions (registration) |
| Rate | 1% or 5% (residential) | Typically 5–8%, varies by state |
| When paid | During construction, per instalment | At the time of property registration |
| Applicable on resale/ready properties? | No | Yes |
| Governing law | CGST Act, 2017 | State Stamp Act |
Both GST and stamp duty apply on under-construction property purchases, but they are calculated and remitted separately, to different government bodies, under entirely different legal frameworks.
Does GST Apply to Land Value?
No. The sale of land, by itself (without any construction or development service bundled in), is outside the scope of GST. The Central Board of Indirect Taxes and Customs (CBIC) has consistently confirmed that Schedule III of the CGST Act excludes the sale of land from the scope of GST.
However, complications arise in two common scenarios:
- Composite contracts: If you buy land and enter into a separate construction agreement with the same developer for building a house on it, tax authorities may treat this as a composite supply, potentially attracting GST on the construction component
- Joint development arrangements: Itcan create disputes over GST applicability on the land-related consideration when the parties do not clearly separate the land value from the construction value in the agreement.
For clarity on your specific transaction, especially when buying a plot with a construction agreement attached, consult a chartered accountant or refer to the CBIC’s official GST guidance.
Are Under-Construction Properties More Expensive Because of GST?
Not necessarily — and this is where buyer perception often diverges from the actual numbers. Several factors offset the GST cost on under-construction properties:
- Lower base price: Developers typically price under-construction units at a lower rate per square foot than comparable ready-to-move-in units in the same project or locality because they account for construction-stage risks and the time value of money for early buyers.
- Payment flexibility: Construction-linked payment plans spread the cost (and the GST liability) over the construction period, easing cash flow compared to a lump-sum payment for a ready property
- Customisation options: Buyers purchasing early in the construction cycle often get more say in interior specifications, fittings, and layout adjustments
In many cases, the lower base price of an under-construction unit more than offsets the 1–5% GST, making it cost-competitive with — or cheaper than — an equivalent ready-to-move-in unit. The right comparison is always total outlay (base price + GST + stamp duty) against total outlay for the ready alternative, not GST in isolation.
How is GST Going to Affect the Real Estate Sector?
The GST regime, including its 2026 structure, continues to shape the real estate sector in measurable ways:
- Affordable housing growth: The 1% concessional rate has incentivised developers to launch more projects meeting affordable housing criteria, supporting the government’s broader housing access goals
- Transparency improvement: GST replaced a complex web of VAT, service tax, excise duty, and entry tax with a single, visible tax line on your purchase agreement — making cost comparison across builders and projects easier
- Builder cost management: The reduced cement GST rate (28% to 18% from September 2025) and other input cost adjustments help builders manage project economics, indirectly supporting price stability in a competitive market
- Buyer preference shift: The structural GST advantage of ready properties continues to influence demand patterns, particularly in cities with significant unsold ready inventory
How Does GST on Under-Construction Property Affect Home Loans?
If you are financing an under-construction purchase with a home loan, GST on under-construction property gets factored into your total loan requirement in a specific way:
- Most lenders calculate your loan eligibility and disbursement schedule against the GST-inclusive cost of each construction milestone, not just the base price
- Disbursements typically follow the construction-linked payment plan, with each tranche released as you make payments (including the applicable GST) to the builder
- Since GST adds to your total funding requirement, factor it into your loan amount calculation upfront rather than discovering the gap later
Use a home loan eligibility calculator to estimate your borrowing capacity inclusive of GST-related costs, and check your home loan EMI for the full loan amount — not just the base property price — to avoid underestimating your monthly obligation.
FAQs on GST on Under-Construction Property
Q: How to calculate GST on under-construction property with examples?
Multiply the property’s base price by the applicable rate — 1% for affordable housing or 5% for other residential units. For a ₹60 lakh affordable flat, GST is ₹60,000 (total ₹60.6 lakh). For a ₹60 lakh non-affordable flat, GST is ₹3 lakh (total ₹63 lakh).
Q: What is the GST rate on under-construction property?
The GST rate is 1% for affordable housing (carpet area up to 60 sqm in metros/90 sqm in non-metros, priced up to ₹45 lakh) and 5% for other residential under-construction units, both without Input Tax Credit.
Q: Why is GST applicable only on under-construction properties?
Under-construction purchases are legally treated as a “supply of construction service” under GST law. Once a Completion Certificate is issued, the property becomes immovable property under Schedule III of the CGST Act, which is outside GST’s scope.
Q: Is GST applicable after possession?
GST applicability depends on when the Completion Certificate was issued relative to your payments, not when you take physical possession. Payments made before CC/OC issuance attract GST; payments made after do not.
Q: Does GST apply to land value?
No, the sale of standalone land (without bundled construction services) is outside the scope of GST. However, composite arrangements involving land plus a construction agreement may attract GST on the construction portion.
Q: What is the difference between GST and stamp duty?
GST is a central tax (1% or 5%) applicable only on under-construction property as a service charge. Stamp duty is a state-level levy (typically 5–8%) applicable on all property registrations, regardless of construction status.
Conclusion
GST on under-construction property in India follows a clear, rate-based structure — 1% for affordable housing and 5% for other residential units, with no GST at all once a Completion Certificate is issued. Knowing exactly how and when GST applies to your construction-linked payments helps you budget accurately and compare under-construction options fairly against ready-to-move-in alternatives. For more guidance on financing your property purchase, including construction-linked loan disbursement, visit the HomeFirst Finance blog or explore home construction loan options.
