The Goods and Services Tax (GST) came into play in 2017. It was a big shift for India’s tax regulations since it swapped many old taxes for one that was easier. GST covers a host of commodities and offerings, though how it ties to land, which cannot be moved, has made many feel lost – this includes builders, shoppers, and legal minds.
Land, not able to be moved, gets a pass from GST if sold by itself. This is because land is not categorized as a product or a service under GST laws. However, things get more complicated when land is part of a combined real estate transaction, like buying an under-construction property or a plot that comes with construction services.
Knowing how GST applies – or doesn’t apply – to land purchases is critical for:
- Preventing unnecessary financial burdens
- Achieving accurate tax compliance
- Navigating real estate contracts in a definite way
This guide analyses the GST implications on different kinds of land transactions, reviews the concept of composite delivery and supply, and explains how input tax credit and valuation rules weigh in.
GST consists of a single indirect tax enforced on the provision of goods and services in India. It does not directly apply to the sale of land, not being a “good” or “service”.
However, GST may involve associated services. For example, if you buy land on a building site still being built, GST gets added only on the building work, not the land. Let’s say you pay Rs 60,00,000 for a flat and Rs 25,00,000 for its building. GST will apply just to the Rs 25,00,000 part, not the cost of the land.
| Description | Amount (Rs) | GST Rate | GST Amount (Rs) |
| Total Cost of Flat | 60,00,000 | – | – |
| Land Portion (No GST) | 35,00,000 | 0% | 0 |
| Construction Cost (Taxable Part) | 25,00,000 | 5% | 1,25,000 |
| Total GST Payable | – | – | 1,25,000 |
GST Enforcement on Developed Plots of Land
GST does not apply when purchasing vacant land only. However, if the transaction involves an immovable property (like land with a house) or is a part of a composite supply (land together with construction), then GST may apply.
| Situation | GST Applicable | Rate |
| Vacant land sale | No | 0% |
| Land + ready-to-move home | Yes | 18% (on the construction segment) |
| Under-construction property purchase | Yes | 5% (regular) or 1% (affordable housing) |
| Completed property (with Completion Certificate) | No | 0% |
Main points:
Buying land with construction, whether existing for immediate occupancy or under construction? GST applies to the constructed portion.
- Completed properties (with a certificate) are GST-exempt.
- Purchasing vacant land? No GST – only stamp duty.
- For economical housing, a lower 1 percent charge applies to under-construction properties; otherwise, it’s generally 5% or 18%. e
Always verify if the land transaction includes amenities or construction to ascertain GST liability.
Effect of GST on the Land Industry
The GST in India brought in landmark transformations across industries, but its effect on the land sector has been confined, though it holds great importance.
As the sale of land is not taxed under GST, most land transactions are still administered by registration charges and stamp duty. However, GST does affect the industry indirectly, specifically when land is developed and sold with services, like drainage, roads, or electricity linkages.
This signifies that developers selling planned layouts must now levy GST on the service part of the sale. As a consequence, buyers may disburse more cash in comparison to the past, and builders need to maintain accurate books to separate the worth of the land from the value of the services.
Example:
A developer sells a plot for Rs 15,00,000:
- Rs 12,00,000 is for land (no GST)
- Rs 3,00,000 is for development (amenities)
GST at 18% on Rs 3,00,000 = Rs 54,000
| Item | Amount (Rs) | GST Rate | GST Amount (Rs) |
| Land (not taxable) | 12,00,000 | 0% | 0 |
| Development Services | 3,00,000 | 18% | 54,000 |
| Total GST Payable | – | – | 54,000 |
GST has rendered land development more structured, though also high-priced for buyers when services are included.
GST on a land purchase operates on the listed services
- Any tenancy, lease, license or easement to occupy the land
- Any letting out or contract of the building, including an industrial, commercial or housing complex for commerce or business, either partly or wholly.
Calculation of GST on Land Purchase
To compute GST on land purchase that involves construction or development, the following formula is used:
Total GST = SGST + CGST
A normal abatement of 33% of the property value is earmarked for the land cost, and GST is computed on the remaining amount. As an example:
Property value: Rs 1,50,00,000
Less: 33% abatement for land = Rs 49,50,000
Taxable amount = Rs 100,50,000
GST @18% = Rs 18,09,000
Effect of GST on Land Buyers
The enforcement of GST on the sale and purchase of land has different implications for buyers and developers. Here are some significant points to consider:
1. Increased Expenses for Under-Construction Properties
Purchasers must pay GST on the sale and purchase of land when they get property ownership that includes construction services in construction properties or real estate projects. The property gets more expensive for buyers due to this addition. GST’s effect on property transactions becomes less when the construction attains its final phase or when the property has been completely built.
2. Greater Transparency
The adoption of GST has delivered more transparency to the real estate industry. The construction services are now charged with GST separately, which makes it clear to the buyers how much sales tax they are really paying. Regarding the transaction, there is more visibility into the tax system and buyers will have a better understanding of their costs, and tax documents should also be properly presented.
3. Input Tax Credit
The Input Tax Credit is a key feature of GST. Businesses can utilise GST paid on their input purchases, like building services, to lower their forthcoming tax dues. Commercial property buyers, along with business owners who procure developed land, can gain from big tax savings via Input Tax Credit. ITC helps commercial asset buyers, but it does not concern real estate property purchases.
4. Informed Decisions on Land Purchases
Understanding GST taxation rules in land dealings helps buyers make more educated decisions when buying land. Property buyers can decide their complete purchase costs through the mix of GST rates and knowledge of construction services.
As someone who buys land, it’s key to get the effect of GST on what you buy. Here are some main points:
- Houses still being built may carry a lower cost than ones you can move into right away, even with GST.
- Residential properties having a maximum of 15% commercial space are considered suburban in relation to GST.
- Buyers should be wary of their affordability and investment horizon before making a purchase decision.
Wrapping Up
In India, the purchase of land in its refined form – be it agricultural or non-agricultural – is not subject to GST, due to land being an immovable property and exempt from the scope of supply within the GST law. Nevertheless, when land is sold by way of a developed plot or packed with construction services, GST may apply to the value of the services delivered, typically at 18%.
The difference provides that land is tax-exempt, whereas any enhanced services tied to its construction or development are taxed to provide accountability and transparency in conformity with our real estate transactions. Purchasers must be vigilant about the nature of their purchase to ascertain GST liability, while also being accountable for stamp duty and registration charges, which remain relevant irrespective of GST.
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