GST on an under-construction flat: 1% or 5%, the one-third land deduction, and why ready flats have none

Rules and rates as of 12 October 2026.

The GST line on a builder's demand letter for an under-construction flat is usually the second-largest number on it, after the instalment itself. Most buyers know the two headline figures, 1% and 5%. Fewer know where those figures come from, and that is where the errors creep in: the rate printed in the government notification is not 1% or 5%, and the base it applies to is not the full price you pay.

Where the 1% and 5% actually come from

GST on flats sold before completion is tax on a construction service, not on a sale of property. The rates sit in CGST Notification 11/2017-Central Tax (Rate), as substituted from 1 April 2019 by Notification 03/2019-Central Tax (Rate). For a promoter building in a residential real estate project, the notification lists central tax of:

• 0.75% for an "affordable residential apartment"; and
• 3.75% for residential apartments other than affordable ones.

State GST is levied at a matching rate, so the combined rates are 1.5% and 7.5%. The notification also says the central tax must be paid in cash and that the builder must not have taken input tax credit on the goods and services used, apart from narrow exceptions in its annexure.

The step that turns 1.5% and 7.5% into 1% and 5% is paragraph 2 of Notification 11/2017. Where the supply includes transfer of land or an undivided share of land to the buyer, the value of land is deemed to be one third of the total amount charged, and that third is taken out before tax. GST is therefore charged on two-thirds of the total amount. Two-thirds of 7.5% is 5%; two-thirds of 1.5% is 1%. The PIB release on the 34th GST Council meeting of 19 March 2019, which recommended these rates, uses the same "1/3 land abatement" language.

Which flats count as "affordable"

Notification 03/2019 defines an affordable residential apartment, for projects that commence on or after 1 April 2019, as one with:

• carpet area not exceeding 60 square metres in metropolitan cities or 90 square metres elsewhere; and
• a gross amount charged of not more than ₹45 lakh.

Both limits must be met. "Carpet area" takes its meaning from section 2(k) of the Real Estate (Regulation and Development) Act, 2016, the same figure your RERA agreement shows. The notification names the metropolitan cities: Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon and Faridabad), Hyderabad, Kolkata and Mumbai (the whole of MMR). Pune and Ahmedabad are not on that list, so the 90 sq m limit applies there.

That list matters more than buyers expect. A 75 sq m flat priced at ₹42 lakh is affordable in Pune and not affordable in Bengaluru, even though the price is identical.

Worked example: two flats, computed three ways

Take two under-construction flats in projects that began after 1 April 2019. Assume the "total amount" is the agreement value for the flat and that the whole amount is paid before the completion certificate.

• Flat A: ₹80 lakh, 95 sq m carpet, Mumbai. Over both limits, so non-affordable.
• Flat B: ₹42 lakh, 75 sq m carpet, Pune. Under ₹45 lakh and under 90 sq m in a non-metro city, so affordable.
• Flat B in Bengaluru: the same ₹42 lakh and 75 sq m, but in a metro, where 75 sq m exceeds the 60 sq m limit. Non-affordable.

The correct method is: taxable value = total amount − one third deemed land value; GST = taxable value × (CGST rate + SGST rate).

For Flat A: ₹80,00,000 − ₹26,66,667 = ₹53,33,333. CGST at 3.75% is ₹2,00,000 and SGST at 3.75% is ₹2,00,000, for a total of ₹4,00,000. That is exactly 5% of ₹80 lakh.

For Flat B in Pune: ₹42,00,000 − ₹14,00,000 = ₹28,00,000. CGST at 0.75% is ₹21,000 and SGST is ₹21,000, for a total of ₹42,000, or 1% of the price.

Two lessons follow. First, "5% of the full price" gives the right answer only because the one-third deduction is already baked into the 5%; calculators that also deduct the third undercount by a third, and readers who see 7.5% in the notification and apply it to the full price overcount by half. Second, classification moves the bill far more than arithmetic: the same ₹42 lakh flat carries ₹42,000 of GST in Pune and ₹2,10,000 in Bengaluru.

Why a ready-to-move flat has no GST

Schedule III of the CGST Act lists activities that are neither a supply of goods nor of services. Its paragraph 5 reads: "Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building." Schedule II, paragraph 5(b), in turn treats construction of a building meant for sale as a service, except where the entire consideration is received after the completion certificate is issued by the competent authority, or after first occupation, whichever is earlier.

So a flat paid for entirely after the completion certificate or first occupation falls outside GST. The key word is "entire". If any part of the price was paid before that point, the transaction falls inside the construction-service rule. How much GST then appears on each invoice depends on when each instalment was billed and paid, which is a question for a chartered accountant rather than a rule of thumb. Stamp duty and registration are separate state levies and apply whether or not GST does.

What the notification does not settle

The rates above apply to the construction of the apartment. Whether a builder charges GST on preferential location charges, car parking, clubhouse membership, maintenance deposits or other add-ons, and at what rate, depends on how those items are described and billed in your agreement. This piece does not go beyond what the notification says; ask the builder for the GST breakup by line item and take it to a CA if a line looks odd.

Projects that were already under way on 1 April 2019 could opt to stay on the older rates of 8% or 12% with input tax credit, according to the 34th Council's release. Very few buyers today are in such projects, but if your builder quotes 12%, ask whether that option was exercised.

Finally, the September 2025 rate rationalisation recommended at the 56th GST Council meeting cut GST on cement from 28% to 18% (a goods rate that affects builders' costs), but the press release and both FAQ sets we read say nothing about the 1% and 5% residential rates. The release of the 57th meeting on 8 October 2026 does not mention real estate either. We could not read the services annexure or the September 2025 amending notification itself, so check with a CA or the CBIC rate notification if your builder cites a change.