Library / Goods and Services Tax: The Professional's Master Guide
49. Case Study 5: Residential Real Estate Project
49.1 Facts
Sabarmati Heights is a residential project in Ahmedabad by Umiya Developers LLP. It has 100 flats of 95 square metres carpet area each, so they are not affordable residential apartments. The land belongs to Mr. Harshad Patel, who signed a joint development agreement (JDA) on 1 April 2024. He transfers development rights and gets 20 flats; the promoter sells the other 80.
Particulars | Details |
|---|---|
Price of similar flats at JDA date | Rs. 60,00,000 each |
Price at completion certificate (CC) date | Rs. 75,00,000 each |
Completion certificate issued | 15 December 2025 |
Flats booked by buyers before CC | 60 |
Promoter flats unsold on CC date | 20 |
Unsold flats sold in 2026 after CC | 20 at Rs. 80,00,000 each |
Inputs and input services, FY 2025-26 up to CC | Rs. 20,00,00,000 |
Of which from registered suppliers | Rs. 15,40,00,000 |
49.2 Issues
- Rate on flats sold before CC and the deemed land deduction.
- The 80% procurement test and reverse charge on the shortfall.
- Tax on flats given to the landowner and on development rights for unsold flats.
- Sale of flats after CC.
49.3 Analysis and computation
From 1 April 2019, residential apartments in a real estate project are taxed at an effective 5% (1% for affordable flats) without ITC. The notification rate is 7.5% on the value after deducting land, and land is deemed to be one-third of the total amount. The result is 5% of the flat price.
Flat price | Rs. 75,00,000 |
Less: deemed value of land, one-third | Rs. 25,00,000 |
Value of construction service | Rs. 50,00,000 |
GST at 7.5% (CGST 3.75% + SGST 3.75%) | Rs. 3,75,000 |
Effective rate on flat price | 5% |
Tax arises on each instalment as it is demanded or received, whichever is earlier. An instalment of Rs. 15,00,000 carries GST of Rs. 75,000.
Illustration 212: The 80% test for FY 2025-26 Step 1: At least 80% of inputs and input services (excluding development rights, long-term lease premium, electricity, high speed diesel, motor spirit and natural gas) must come from registered persons. Capital goods are outside the test but must be bought from registered persons or taxed under reverse charge. No cement or capital goods were bought from unregistered persons. Step 2: Required from registered suppliers = 80% of 20,00,00,000 = Rs. 16,00,00,000. Actual = Rs. 15,40,00,000, that is 77%. Step 3: Shortfall = Rs. 60,00,000. Tax at 18% under reverse charge = Rs. 10,80,000 (CGST Rs. 5,40,000, SGST Rs. 5,40,000). Step 4: Paid in cash through DRC-03 by 30 June 2026. There is no credit of this tax because the project is under the no-ITC scheme. |
Flats to the landowner. The promoter supplies construction service to Mr. Patel in exchange for development rights. The value is the price of similar flats charged to independent buyers nearest to the date of the JDA, that is Rs. 60,00,000 per flat. Tax is due on the CC date.
Value of 20 flats to landowner: 20 x 60,00,000 | Rs. 12,00,00,000 |
Less: deemed land, one-third | Rs. 4,00,00,000 |
Taxable value | Rs. 8,00,00,000 |
GST at 7.5%, payable for December 2025 | Rs. 60,00,000 |
Illustration 213: Development rights relating to unsold flats Step 1: The value of development rights is taken at the value of the flats given for them, Rs. 12,00,00,000. Step 2: Development rights are exempt to the extent of flats booked before CC. Treating the landowner's 20 flats and the 60 booked flats as sold, 80% is exempt and 20% relates to unsold flats. Step 3: Tax on 20% under reverse charge at 18%: 2,40,00,000 x 18% = Rs. 43,20,000. Step 4: Cap: 5% of the value of unsold flats at CC = 20 x 75,00,000 x 5% = Rs. 75,00,000. Step 5: Tax payable by the promoter on the CC date is the lower, Rs. 43,20,000 (CGST Rs. 21,60,000, SGST Rs. 21,60,000). |
Sale after CC. Under paragraph 5 of Schedule III, sale of a building is neither a supply of goods nor of services where the entire consideration is received after the CC. The 20 flats sold in 2026 for Rs. 16 crore bear no GST, only stamp duty. The tax cost of that exclusion was, in effect, paid through the development rights tax above.
49.4 Compliance and documentation
- GSTR-1 and GSTR-3B monthly; project-wise accounts are compulsory.
- December 2025 GSTR-3B: output tax on landowner flats and reverse charge on development rights, both in cash.
- DRC-03 for the 80% shortfall by 30 June 2026; a supplier-wise register of registered and unregistered purchases supports the working.
- Mr. Patel, if he sells his flats before CC, charges GST and can take credit of the tax charged by the promoter on his flats.
Key point Lessons Track the 80% test monthly. A shortfall found at the year end carries 18% tax that cannot be passed on. The JDA date fixes the value of landowner flats; keep evidence of sale prices around that date. Every unsold flat on the CC date costs development rights tax. Sales before CC reduce it. |
Chapter summary • Flats are taxed at an effective 5% after deducting one-third for land, without ITC. • A 77% procurement ratio led to reverse charge of Rs. 10,80,000 on the shortfall. • Landowner flats bore Rs. 60,00,000 and development rights for unsold flats Rs. 43,20,000, both on the CC date. • Flats sold wholly after CC are outside GST. |
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