Construction and real estate: GST rates and project accounting

Key facts

• Builders selling flats before completion pay GST: 1% on affordable housing and 5% on other residential flats, without ITC. A deduction of one-third of the price for land is built into these effective rates.
• Sale of a flat after the completion certificate is not a supply under GST (no GST).
• Works contract services (construction for a client, where both goods and labour are involved) are taxed at the standard 18% with ITC. Some specified works contracts (for government, local bodies and certain projects) have had separate rates; check the current entry in Notification 11/2017-Central Tax (Rate) before billing.
• Cement moved from 28% to 18% from 22 September 2025 (56th GST Council), which reduces input cost for builders and contractors.

Affordable housing (for the 1% rate)

A flat with carpet area up to 60 sq m in metro cities (or 90 sq m elsewhere) and value up to ₹45 lakh.

ITC rules

• Builders paying 1% / 5% cannot claim ITC. They must buy at least 80% of inputs and input services (other than some items) from registered suppliers, or pay GST under reverse charge on the shortfall (18% on most items; cement at its own rate).
• A business cannot claim ITC on construction of its own building (office, factory shed, shop), except plant and machinery (section 17(5)(c)/(d)).
• Contractors can claim ITC on materials and sub-contractor bills used in works contracts for clients.

Project accounting

• For contractors, recognise revenue by percentage of completion (AS 7 / Ind AS 115): costs incurred to date ÷ total estimated cost.
• For builders (real estate developers), follow the Guidance Note: revenue only when at least 25% of construction cost is incurred, and other conditions are met.
• Keep a separate cost centre per project: land, approvals, materials, labour, sub-contracts, finance cost.
• Advances from flat buyers are liabilities until revenue is recognised.

Income tax points

• TDS on contracts: 1% (individual/HUF contractor) or 2% (others) above ₹30,000 per bill or ₹1 lakh a year.
• Buyers of property worth ₹50 lakh or more deduct 1% TDS from the price.

Common questions

Is GST charged on land?

No. Land is not taxed. The 1% and 5% rates already assume one-third of the price is land.

What GST applies to a commercial shop in a residential project?

It depends on the share of commercial area and the project type. Check the current rate notification for real estate projects before billing.

Do I charge GST on maintenance?

A resident welfare association charges 18% if the monthly contribution per member is above ₹7,500 and its annual turnover is above ₹20 lakh.

Sources

• Notification 11/2017-Central Tax (Rate): rates for services, incl. construction and works contract (as amended)
• Recommendations of the 56th GST Council (cement 18%, 90% provisional refund for inverted duty, GSTAT and 30.06.2026 backlog date)
• Central Goods and Services Tax Act, 2017 (as amended)
• Accounting Standards (AS 2 Inventories, AS 7 Construction Contracts, AS 11 Foreign Exchange) and Ind AS 21 / 115
• Guidance Note on Accounting for Real Estate Transactions
• Income-tax Act, 2025