# GST on Under-Construction Properties: What Homebuyers and Builders Must Know in 2026

 

Buying a home is exciting. It is probably one of the biggest financial decisions you will ever make. But somewhere between choosing the right floor plan and signing the agreement, most people overlook one very important question: how much GST am I actually paying on this property?

 

This blog is here to answer that question clearly. No jargon, no confusion. Just straightforward information that helps you understand where your money is going and what you need to watch out for in 2026.

 

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## First, Let Us Understand Why GST Even Comes Into the Picture

 

Not every property purchase attracts GST. This is the part that confuses most buyers.

 

If you are buying a flat that is already built and has received its Occupancy Certificate, you do not pay GST at all. You only pay stamp duty and registration charges. The same applies if you are buying a resale flat from someone who already owns it. No GST there either.

 

GST comes into the picture only when you buy a property that is still under construction. In simple terms, when you book a flat in a project where the building is still being built and the builder has not yet received the Occupancy Certificate, that transaction is treated as a service. And services attract GST.

 

This is why two flats in the same locality can have very different total costs depending on their construction status. One is tax-free and the other is not.

 

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## What Are the GST Rates in 2026?

 

The current GST rates for real estate have been in place since April 2019, and they continue to apply in 2026. Here is a simple breakdown:

 

**Affordable Housing: 1% GST**

 

If your flat qualifies as affordable housing under the GST rules, you pay only 1% GST on the property value. This is a big relief for budget-conscious buyers.

 

**Regular Residential Property: 5% GST**

 

If the flat does not fall under affordable housing, you pay 5% GST on the agreement value.

 

**Commercial Property: 12% GST**

 

Shops, offices, and other commercial units in standalone commercial projects attract 12% GST. However, commercial units that are part of a residential real estate project usually attract 5% GST. The classification of the project matters here, so always check with your builder.

 

One important thing to remember is that the GST you pay as a buyer is a final cost. You cannot claim it back. There is no refund or credit available to individual homebuyers for GST paid on residential property.

 

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## What Exactly Is Affordable Housing Under GST?

 

This is a term that gets thrown around a lot, but not every affordable-looking flat actually qualifies as affordable housing under the GST framework.

 

For a property to be classified as affordable housing and attract the lower 1% GST rate, it must satisfy two conditions at the same time.

 

The first condition is related to carpet area. In metropolitan cities like Mumbai, Delhi, Bengaluru, Chennai, Kolkata, and Hyderabad, the carpet area of the flat should not exceed 60 square metres. In all other cities and towns, the limit is 90 square metres.

 

The second condition is related to the value of the property. The total price of the flat, including everything the builder charges, should not exceed Rs. 45 lakhs.

 

Both conditions must be met together. If your flat has a carpet area of 55 square metres but is priced at Rs. 60 lakhs, it does not qualify as affordable housing. You would pay 5% GST in that case.

 

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## A Simple Example to Understand the Numbers

 

Let us say you are buying an under-construction flat in Pune for Rs. 50 lakhs. Since this is not affordable housing, you will pay 5% GST on top of the property value.

 

That means Rs. 2.5 lakhs goes towards GST. Your total outgo just from the flat becomes Rs. 52.5 lakhs, before you even account for stamp duty and registration.

 

Now consider another buyer purchasing a flat in a smaller city for Rs. 40 lakhs, with a carpet area of 80 square metres. This qualifies as affordable housing. GST at 1% means only Rs. 40,000 in tax. The total becomes Rs. 40.4 lakhs, which is significantly lower.

 

The difference in tax treatment between these two scenarios is Rs. 2.1 lakhs. That is not a small amount. It shows why understanding the GST category of your flat before you sign is so important.

 

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## Does GST Apply If You Are an NRI Buying Property in India?

 

Yes, it does. Many NRI buyers assume that because they are not residents of India, different rules apply. But GST applicability is based on the nature and status of the property, not on the nationality or residency of the buyer.

 

If an NRI is purchasing an under-construction flat in India, the same GST rates apply as they would for any resident Indian buyer. 1% for affordable housing and 5% for everything else.

 

What may differ for NRI buyers is the TDS (Tax Deducted at Source) treatment under income tax, and the FEMA compliance requirements. But GST itself follows the same rules for everyone.

 

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## What Builders Need to Know: GST Compliance Is Not Optional

 

If you are a builder or developer reading this, GST compliance is one of the most important parts of running your business in 2026. Let us cover the key areas you need to have sorted.

 

**Registration**

 

If your annual turnover from construction and sale crosses Rs. 20 lakhs, you are required to register under GST. For most builders, this threshold gets crossed within the first project itself. You also need to register in every state where you have an active project.

 

**Raising the Right Invoices**

 

Every payment you receive from a buyer must be supported by a proper GST invoice. The invoice must clearly mention your GSTIN, the SAC code for construction services, the taxable value, the rate of GST, and the amount of GST charged. Incorrect or missing invoices can create problems during audits and for buyers trying to track their payments.

 

**When Does GST Become Payable?**

 

GST does not wait until the flat is handed over. It becomes payable the moment you receive a payment or raise an invoice, whichever happens first. So if a buyer pays a booking amount in April and gets a demand letter from you in March, the GST liability arises based on whichever came earlier.

 

This means your GST outflow happens across the entire construction period, not at the end. Builders need to plan their cash flow accordingly.

 

**Reverse Charge on Purchases from Unregistered Vendors**

 

This is an area where many smaller developers get tripped up. If you purchase goods or services from a supplier who is not registered under GST, you may still be required to pay GST on that transaction under the Reverse Charge Mechanism. In simple terms, you pay the GST on behalf of the unregistered vendor and deposit it with the government directly.

 

Common examples include labour contractors, sub-contractors, and small material suppliers who often operate without GST registration. Builders need to identify these transactions carefully and keep their RCM compliance clean.

 

**Filing Returns on Time**

 

Builders need to file GSTR-1 every month or quarter depending on their turnover, and GSTR-3B every month. Delays attract interest and penalties. If your turnover exceeds Rs. 5 crores, you also need to file GSTR-9C (a reconciliation statement) along with your annual return.

 

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## What About Input Tax Credit for Builders?

 

Before April 2019, builders could claim Input Tax Credit on the materials and services they used in construction. This meant that the GST they paid on cement, steel, tiles, and contractor services could be set off against the GST they collected from buyers.

 

That changed in 2019. Under the current rules, builders who use the new lower rates of 1% or 5% are not allowed to claim Input Tax Credit. The lower tax rate is essentially the trade-off for giving up ITC.

 

For buyers, this means no ITC is passed on to them either. The price you see is what you pay, with no hidden credit adjustment.

 

For builders, especially those working on premium projects where material costs are high, the loss of ITC can be a significant financial hit. Some developers absorb it, while others factor it into their pricing.

 

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## Common Mistakes Homebuyers Should Avoid

 

**Not checking whether GST is separately mentioned in the agreement.** Always ensure the agreement shows the base price and GST as two separate line items. Some builders bundle it together, which makes it harder for you to verify whether the right amount is being charged.

 

**Assuming every affordable flat is affordable housing for GST purposes.** Just because the builder markets it as affordable does not mean it qualifies for the 1% rate. Check the carpet area and the value independently.

 

**Paying GST after the Occupancy Certificate is issued.** Once the builder has received the OC, the property is considered ready to move in and GST is no longer applicable. If your builder raises a GST demand after this date, question it before paying.

 

**Not keeping copies of GST invoices.** Every payment you make should come with a proper invoice from the builder. Keep these documents safely because they form part of your property purchase records.

 

**Making payments in cash.** For transactions attracting GST, always pay through banking channels. Cash payments make it harder to trace the GST that was collected, and can create complications later.

 

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## A Quick Checklist Before You Sign That Agreement

 

Before you commit to purchasing an under-construction flat, run through these points:

 

Is the project RERA registered? Check the RERA certificate number on your state RERA portal.

 

What is the carpet area of the flat, and does it fall within the affordable housing limits for your city?

 

What is the total price, and does it qualify for the 1% GST rate?

 

Has the builder shared their GSTIN? You can verify it on the GST portal at gstin.in.

 

Does the agreement separately show the base price and GST amount?

 

Is the builder charging GST on the full agreement value or on the construction value alone? (Some projects separate land cost and construction cost. The GST applicability can differ.)

 

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 In Summary

 

GST on under-construction property is a real and significant cost that every buyer must plan for. In 2026, the rates remain at 1% for affordable housing and 5% for other residential properties. Buyers cannot claim this back. Builders must comply with registration, invoicing, and return filing requirements without fail.

 

The good news is that once you understand how GST works in real estate, you can make smarter purchase decisions, negotiate better, and avoid surprises on the day of possession.

 

If you are unsure about the GST implications on a specific property or project, getting a professional opinion before signing is always the right call. A few thousand rupees spent on good advice can save you lakhs in the long run.

 

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Planning to purchase an under-construction property or need GST advisory for your real estate project? Our team at CA Dhiraj Ostwal and Associates can help you evaluate your GST liability, ensure full compliance, and plan your property purchase in the most tax-efficient way. Reach out to us today.

 

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About the Author

 

CA Dhiraj Ostwal is a practising Chartered Accountant, GST Advisor, and Business Compliance Expert with deep experience in real estate taxation, direct and indirect tax advisory, and regulatory compliance across sectors. He heads CA Dhiraj Ostwal and Associates, a full-service CA firm focused on practical and client-friendly financial solutions. CA Dhiraj regularly advises homebuyers, builders, and NRI investors on property-related tax matters.

 

Disclaimer: This blog is for general informational purposes only and does not constitute legal or tax advice. GST provisions are subject to change. Please consult a qualified Chartered Accountant for advice specific to your transaction.