When GST Is One Percent and When It Is Five
Since 1 April 2019, construction of affordable houses is taxed at an effective one percent without input tax credit (ITC), and construction of other houses at five percent, again without ITC. The GST Council defined an affordable house as one with a carpet area of up to 60 square metres (645.83 sq ft) in metros or 90 square metres (968.75 sq ft) elsewhere and a value of up to Rs 45 lakh.[1]Ongoing projects were given a one-time option to stay on the old effective rates of 8 or 12 percent with ITC.[1]Project teams that misclassify a tower either under-charge the tax or pass extra cost to the buyer, so the safe practice is to lock the classification decision in a written note, signed off by finance and the project head, and to re-check it against the current CBIC rate notification whenever a threshold or rate changes.
Reverse Charge on Purchases from Unregistered Suppliers
The one and five percent rates come with a condition: at least 80 percent of inputs and input services (other than capital goods, TDR/JDA, FSI and long-term lease premiums) must be bought from registered suppliers, and on any shortfall below 80 percent the builder pays tax at 18 percent under reverse charge.[1]In practice this means tracking, supplier by supplier, whether each purchase came from a GSTIN-holding vendor and computing the shortfall. Teams that fail to maintain a register of supplier GSTINs end up discovering the liability at audit, when the only cure is late payment with interest. A simple vendor onboarding checklist that captures GSTIN, registration status, and the items covered is the cheapest insurance against this exposure.
ITC Under the Old Regime, and Anti-Profiteering
Projects that opted to stay on the old 8 or 12 percent regime keep the right to claim ITC,[1]and the GST law's anti-profiteering clause expected that benefit to reach buyers as a reduced price. The government notified 1 April 2025 as the sunset date for that clause, and from 1 October 2024 pending anti-profiteering complaints are handled by the Principal Bench of the GST Appellate Tribunal.[2]A price-benefit ledger that records the base price, the ITC claimed, the ITC passed on, and the resulting per-square-foot adjustment, reconciled monthly against GSTR-2B, is still the record a project needs to answer a pending proceeding or a buyer's question without rebuilding numbers from receipts.
Sources
- Decisions taken by the GST Council in the 34th meeting held on 19th March, 2019 regarding GST rate on real estate sector — Press Information Bureau, Ministry of Finance (copy hosted by the GST Council)
- What it says:
- 1% GST without ITC on affordable houses (60 sq m carpet area in metros / 90 sq m in non-metros, value up to Rs 45 lakh); 5% without ITC on other houses; one-time option for ongoing projects to stay on the old effective 8% or 12% with ITC; the new rates require 80% of inputs and input services to be bought from registered persons, with the shortfall taxed at 18% under reverse charge.
- Rights:
- Government of India publication; cited and paraphrased, not reproduced
- Retrieved:
- 2026-09-23
- Anti-profiteering sunset date set at April 1 next year — The Tribune (news report, updated 2 October 2024)
- What it says:
- The government notified 1 April 2025 as the sunset date for the GST anti-profiteering clause; from 1 October 2024 pending anti-profiteering complaints are handled by the Principal Bench of the GST Appellate Tribunal.
- Rights:
- News report copyright of the publisher; cited and paraphrased, not reproduced
- Retrieved:
- 2026-09-23