Developer Under-Construction Flat Sale: 5% vs 1% Affordable Housing GST India

A Pune-headquartered developer running two parallel residential projects closes Q2 books and pulls the booking register: Project Alpha (a non-affordable premium tower in a metro carpet-area exceeding 90 sq mtr per unit, average consideration Rs 1.35 crore) with 112 units booked in the quarter, and Project Beta (a mid-income affordable tower in a Tier-2 city, sub-90 sq mtr units, sub-Rs 45 lakh consideration) with 208 units booked. The finance controller’s classification challenge is where the reconciliation surface lives: Project Alpha bookings must all sit at 5% CGST + 5% SGST under Notification 3/2019-CTR, while Project Beta bookings must all sit at 1% CGST + 1% SGST as affordable housing — but 27 of the 208 Beta bookings have a carpet area of 88 to 92 sq mtr (right on the non-metro threshold) and 14 of them have a value of Rs 43 to 46 lakh (right on the Rs 45 lakh ceiling). A single misclassified 1%-instead-of-5% booking on the wrong side of either test invites a Section 74 demand at four times the differential rate difference. Developer under construction flat sale 5 percent vs 1 percent affordable housing India classification is the most-audited surface in the post-1-April-2019 real-estate GST regime, and the reconciliation control has to catch the borderline booking at contract-signing, not at annual return filing.

The reconciliation in one paragraph

Every booking of an under-construction residential apartment must be classified at contract-signing into one of three GST buckets — 5% CGST (non-affordable residential under Notification 3/2019-CTR), 1% CGST (affordable housing under the same notification), or 0% (post-completion-certificate booking under Schedule III Entry 5). The 1% affordable-housing rate requires the flat to satisfy a strict dual test — carpet area at or below 60 sq mtr in metros (Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai MMR) or 90 sq mtr elsewhere, AND gross transaction value at or below Rs 45 lakh — with Pradhan Mantri Awas Yojana beneficiary units separately deemed affordable regardless of the two tests. Both 5% and 1% withdraw input tax credit as a structural feature of the notification. Transitional projects (construction commenced before 1 April 2019) had a one-time, irrevocable, project-level opt-in via Form Annexure IV to continue under the old 12%/8% with-ITC scheme; new projects have no opt-in and are locked into the 5%/1% no-ITC regime. Ancillary charges (car parking, preferential location, floor rise) follow the flat’s rate under Section 8(a) composite-supply treatment. Post-CC bookings flip to Schedule III Entry 5 and attract no GST. Section 194-IA (1% buyer-side TDS at Rs 50 lakh threshold) operates independently of the GST rate.

Quick reference

What the classification looks like in India — safe illustrative developer brands

Across large India-listed and privately-held developers — DLF, Godrej Properties, Oberoi Realty, Prestige Estates, Brigade Enterprises, Sobha, Puravankara, Macrotech (Lodha), Sunteck Realty, Kolte-Patil, Signature Global, Mahindra Lifespaces, TATA Realty, Piramal Realty, Ashiana Housing — the post-1-April-2019 residential portfolio typically splits into three tracks: a premium track at 5% CGST for units above the affordable thresholds, an affordable track at 1% CGST for units engineered specifically to sit inside the 60/90 sq mtr and Rs 45 lakh envelope, and a legacy transitional track at 12%/8% with-ITC for projects launched before 1 April 2019 where the developer exercised the Form Annexure IV opt-in. Signature Global, Ashiana Housing, Mahindra Happinest and the PMAY-focused developers in the Tier-2 and Tier-3 markets have engineered their product mix explicitly around the 1% affordable envelope — sub-Rs 45 lakh price points, sub-60 or sub-90 sq mtr carpet areas per market, PMAY Credit Linked Subsidy Scheme integration where available. The premium developers (Oberoi, Lodha, DLF luxury) sit almost entirely in the 5% bucket, with the affordable classification arising only in mixed-use master-plan projects where an affordable component is included as a regulatory-required inclusion under state affordable-housing mandates.

The classification break most often arises in the middle of the market — the ready-to-move-in or under-construction three-bedroom units in Tier-2 metropolitan-adjacent locations (Nashik, Ahmedabad extended, Jaipur, Coimbatore, Vishakhapatnam, Lucknow, Chandigarh Tri-city) where the carpet area sits between 55 and 90 sq mtr and the price point sits between Rs 40 and Rs 50 lakh. A 62 sq mtr flat in metropolitan Bengaluru priced at Rs 44 lakh is not affordable (fails the 60 sq mtr metro test even though value passes); the same flat with the same price in Nashik (non-metro) is affordable (passes both — 62 sq mtr is below 90 sq mtr non-metro ceiling, Rs 44 lakh is below Rs 45 lakh). A 58 sq mtr flat in Bengaluru priced at Rs 47 lakh is not affordable (fails the value test even though carpet area passes). The dual test has to be run mechanically against both dimensions for every booking, and no substitution or averaging is permitted.

The regulatory overlay — Notification 3/2019-CTR and the supporting framework

Notification 3/2019-Central Tax (Rate), dated 29 March 2019, effective 1 April 2019. Section 9(1) of the CGST Act reads with this notification prescribes 5% CGST on non-affordable under-construction residential real estate and 1% CGST on affordable housing residential real estate — both without input tax credit. The notification prescribes a one-third deemed deduction for the value of land, so the statutory rates read as 7.5% (non-affordable) and 1.5% (affordable) applied to the gross consideration, yielding the effective 5% and 1% rates on the whole gross including land. State GST (SGST) mirrors CGST — so the buyer’s total GST outgo is 10% (5% + 5%) on non-affordable and 2% (1% + 1%) on affordable. Commercial under-construction real estate is separately taxed at 12% CGST with ITC (or 5% under the composition-scheme option for a residential-real-estate-project promoter with limited commercial component).

Affordable-housing definition. Notification 3/2019-CTR defines an affordable residential apartment as one having a carpet area not exceeding 60 sq mtr in metropolitan cities (Bengaluru, Chennai, Delhi NCR — comprising Delhi, Noida, Greater Noida, Ghaziabad, Gurugram and Faridabad, Hyderabad, Kolkata and Mumbai — Whole Mumbai Metropolitan Region) or 90 sq mtr in cities or towns other than the listed metros, AND with a gross amount charged for such apartment by the promoter not exceeding Rs 45 lakh. The carpet-area definition is imported from Section 2(k) of the RERA Act 2016 — the net usable floor area excluding external walls, service shafts, balcony or veranda area, and open terrace area (but including the area of internal partition walls of the apartment). Both conditions must be simultaneously satisfied; failure on either disqualifies the 1% treatment.

PMAY beneficiary units. Residential apartments constructed under the Pradhan Mantri Awas Yojana (Urban) framework — specifically Credit Linked Subsidy Scheme (CLSS) beneficiary units, In-Situ Slum Redevelopment (ISSR) beneficiary units, Affordable Housing in Partnership (AHP) beneficiary units, and Beneficiary-Led Construction (BLC) beneficiary units — are separately deemed affordable regardless of the carpet-area and value tests. The developer’s classification register must carry the PMAY beneficiary flag with a copy of the subsidy sanction letter or the beneficiary certification as supporting evidence.

One-time transitional-project opt-in. For projects where construction had commenced and bookings had been received before 1 April 2019 (transitional projects), the developer had a one-time, project-specific election via Form Annexure IV to the jurisdictional Commissioner — filed by 20 May 2019 (subsequently extended by CBIC administrative notification) — either to continue under the old 12%/8% with-ITC regime for the balance construction on that project, or to migrate to the new 5%/1% no-ITC regime. Absence of a valid opt-in defaulted the project to the new scheme. The election is irrevocable for the project’s life. New projects launched on or after 1 April 2019 have no opt-in and are locked into the 5%/1% no-ITC regime by default.

Notification 4/2019-Central Tax (Rate). The developer is liable to discharge GST on the reverse-charge basis on inward supplies of Transferable Development Rights (TDR), additional Floor Space Index (FSI), and long-term lease of land (lease term of 30 years or more) — but only on the proportion attributable to residential apartments that are unsold as of the completion-certificate issuance date (or first-occupation date, whichever is earlier). The rate on TDR/FSI in this context is 18% under SAC 9972. The reverse-charge liability crystallises at CC issuance and is reported in GSTR-3B Table 3.1(d).

Schedule III Entry 5, CGST Act 2017. Sale of a building after issuance of the completion certificate — or after first occupation, whichever is earlier — is neither a supply of goods nor supply of services and is entirely outside the GST net. Post-CC bookings attract no GST from the developer regardless of the flat’s affordable or non-affordable status.

Section 194-IA, Income-tax Act 1961 (mapped to Section 393(1) Sl. 21 in the Income-tax Act 2025 taxonomy). Independent of the GST rate. The buyer (transferee) deducts 1% TDS at the time of credit or payment of consideration to a resident transferor on transfer of immovable property (other than agricultural land) where the consideration or the stamp duty value is Rs 50 lakh or more. The TDS is on the gross consideration inclusive of GST (CBDT Circular 8/2013). Deposited via Form 26QB.

A worked example — illustrative Rs 42 lakh flat, 55 sq mtr in Mumbai MMR

Illustrative — the numbers below are representative for the classification walk-through. Cross-verify against the current scheme master and the CC-issuance calendar for your project before action.

Consider a booking made on 15 August 2026 in a new affordable-housing project launched in April 2025 in Panvel (part of Mumbai Metropolitan Region — a listed metropolitan area under Notification 3/2019-CTR):

• Unit configuration: 1BHK, carpet area 55 sq mtr per RERA Section 2(k) definition
• Metropolitan area: Mumbai MMR (yes — Panvel falls under Mumbai MMR per the notification list)
• Gross consideration: Rs 42 lakh (base flat price Rs 40 lakh + car parking Rs 1.5 lakh + preferential location Rs 50,000)
• Project opt-in status: New project (post-1-April-2019 launch) — no opt-in, locked into new scheme
• PMAY flag: No PMAY beneficiary certification
• CC status: Under construction; CC expected FY 2027-28
• Buyer: Resident individual, salaried professional

Affordable-housing dual test:

1. Carpet area test: 55 sq mtr ≤ 60 sq mtr metro ceiling ✅ passes
2. Value test: Rs 42 lakh ≤ Rs 45 lakh ceiling ✅ passes

Classification: Affordable housing under Notification 3/2019-CTR — 1% CGST + 1% SGST.

Ancillary-charges treatment (Section 8(a) composite supply): Car parking (Rs 1.5 lakh) and preferential location charges (Rs 50,000) are naturally bundled with the flat and taxed at the principal supply’s rate — 1% CGST + 1% SGST — not at any independent rate. The composite consideration is Rs 42 lakh.

GST computation:

• Gross consideration (inclusive of land, per Notification 11/2017-CTR treatment): Rs 42,00,000
• One-third deduction for land value: Rs 14,00,000
• Taxable value (two-thirds of gross): Rs 28,00,000
• Statutory rate: 1.5% CGST + 1.5% SGST = 3% total
• CGST at 1.5% on Rs 28,00,000: Rs 42,000
• SGST at 1.5% on Rs 28,00,000: Rs 42,000
• Total GST: Rs 84,000 (effectively 2% on the gross Rs 42 lakh consideration)

Invoice describes the composite supply of an affordable-housing residential apartment; the parking and PLC are shown as part of the composite consideration and do not carry independent rate lines.

Section 194-IA TDS check:

• Gross consideration: Rs 42 lakh
• Section 194-IA threshold: Rs 50 lakh
• Test result: Rs 42 lakh < Rs 50 lakh — 194-IA threshold NOT crossed
• Buyer’s 194-IA TDS obligation: Nil
• No Form 26QB deposit required

If the same flat were priced at Rs 52 lakh (hypothetical variation — would then also fail the Rs 45 lakh affordable-housing value test and re-classify to 5% CGST), the buyer would deduct 1% TDS on the gross consideration inclusive of GST — that is, Rs 52 lakh + 5% CGST + 5% SGST = Rs 52 lakh + Rs 5.2 lakh (grossed on statutory basis) — and deposit approximately Rs 62,000 in Form 26QB. Section 194-IA operates on the gross consideration inclusive of GST per CBDT Circular 8/2013.

Ind AS 115 revenue-recognition alignment: The developer recognises revenue on the percentage-of-completion basis under Ind AS 115 for the under-construction project; the invoice booked at 1% CGST + 1% SGST feeds the deferred-tax computation under Section 43CB of the Income-tax Act. See real estate developer revenue recognition under Ind AS 115 for the POC and contract-liability rollforward mechanics.

RERA escrow-account impact: 70% of the collected consideration (Rs 42 lakh + Rs 84,000 GST = Rs 42.84 lakh × 70% = Rs 29.99 lakh) must be deposited into the project’s RERA-designated escrow account under Section 4(2)(l)(D) of the RERA Act, released only against CA and Chartered Engineer-certified construction progress. See RERA escrow account reconciliation for the CA/CE certification and withdrawal cycle.

Common reconciliation breakages

Metro / non-metro misclassification. Developer treats a 65 sq mtr Panvel flat as affordable (applying the 90 sq mtr non-metro ceiling incorrectly) when Panvel is inside Mumbai MMR and the 60 sq mtr metro ceiling applies. Under-collects the differential 4% (5% - 1% = 4% CGST) plus 4% SGST. Section 74 demand with 100% penalty on the differential where the tax officer establishes wilful mis-declaration; Section 73 (no wilful default) with reduced penalty otherwise. The classification register must carry the notification’s metro-list mapping per project location, not the developer’s operational metro definition.

Value-ceiling straddle at Rs 45 lakh. A flat originally priced at Rs 44 lakh gets revised upward mid-construction (post-booking amenity upgrade or floor-rise reallocation) to Rs 47 lakh. The original 1% rate applied at booking must be revisited — the affordable status is lost from the date of the revised agreement, and the differential 4% CGST + 4% SGST from that date forward must be collected and remitted. The reconciliation control must re-run the affordable test at every consideration-revision event, not only at first booking.

Composite-supply rate leakage on ancillary charges. Parking or PLC is invoiced independently at 18% or at any rate different from the flat’s 1% or 5% — the composite-supply rule under Section 8(a) requires the ancillary charges to follow the principal supply’s rate. Independent billing at a higher rate overcollects from the buyer with no ITC available; independent billing at a lower rate under-collects. The classification register must lock parking/PLC/floor-rise to the flat’s rate at contract-signing.

Transitional-project opt-in status drift. The developer’s project master carries the wrong opt-in status — a project marked as new-scheme was actually opted into the old scheme via Form Annexure IV, so the developer has been under-collecting output tax (charging 5%/1% instead of 12%/8%) and losing the ITC entitlement. Reverse mistake — a project marked as old-scheme was defaulted to the new scheme (no opt-in filed) — leaves the developer over-collecting output tax and improperly claiming ITC that is not available. The opt-in verification must trace to the actual Form Annexure IV acknowledgement, not to the project team’s assumption.

Missed CC-date flip to Schedule III Entry 5. A booking made on 5 September 2026 on a project whose CC was issued on 20 August 2026 is entirely outside GST scope — no 5% or 1% is applicable — but the developer’s system continues to apply the 5%/1% classification because the CC-date reference has not been updated in the project master. Over-collects GST from the buyer with no offsetting liability at the developer’s end (the collected GST becomes a Section 76-recoverable-from-any-person amount). See completion certificate flat sale — no GST for the post-CC treatment.

TDR / FSI reverse-charge liability oversight. At CC issuance, the developer has 22% of the residential apartments unsold. Notification 4/2019-CTR triggers a reverse-charge liability on 22% of the total TDR/FSI cost acquired for the project. Missing the RCM crystallisation at CC issuance leaves a GSTR-3B Table 3.1(d) gap that surfaces in the annual return and drags interest under Section 50.

Section 194-IA misinterpretation on GST-exclusive vs GST-inclusive. Buyer’s tax advisor computes 1% TDS on the flat consideration excluding GST — but CBDT Circular 8/2013 requires the 194-IA computation on the gross consideration inclusive of GST. Buyer under-deducts by 1% of the GST amount; developer’s Form 26QB reconciliation shows the gap; developer is not liable for the buyer’s under-deduction but the buyer becomes a defaulter under Section 201. See TDS on property purchase — Section 194-IA Rs 50 lakh threshold for the deposit and Form 26QB filing mechanics.

How a reconciliation platform handles this — customer-benefit altitude

Running per-booking classification across a large residential portfolio — hundreds of active bookings per quarter, mixed metro and non-metro projects, transitional and new-scheme projects side by side, PMAY beneficiary units bypassing the dual test, TDR/FSI reverse-charge crystallisation at CC issuance, and RERA-escrow withdrawal alignment — is a multi-document reconciliation problem where a spreadsheet cycle at quarter-end will always be reactive. Purpose-built GST reconciliation software India treats every booking as a classification event, runs the affordable-housing dual test at contract-signing against the notification’s metro list and Rs 45 lakh ceiling, cascades the flat’s rate through the composite-supply ancillary charges, gates every invoice at the CC-date check per project phase, tracks the TDR/FSI RCM register for crystallisation at CC issuance, and reconciles the Section 194-IA buyer-side Form 26QB deposits per booking. The reconciliation software India platform carries presets for the 5%/1% affordable-housing rate switch including the PMAY beneficiary flag, the transitional-project opt-in state, the metro/non-metro classification per location, and the Schedule III Entry 5 post-CC flip. For the buyer-side TDS reconciliation, the TDS reconciliation software layer maps Form 26QB deposits to the developer’s own AIS/26AS credit and surfaces mismatches within the current quarter. Customer outcomes include match-rate improvement from 51% to 88%, with build in two-to-four weeks on AWS Mumbai (ISO 27001:2022, DPDP Act 2023 aligned).

Continue reading — Real estate cluster

• Slum rehab and affordable housing — 1% CGST under Notification 3/2019-CTR — In-Situ Slum Redevelopment, PMAY beneficiary treatment, deemed-affordable classification
• Completion certificate flat sale — no GST under Schedule III Entry 5 — post-CC sale mechanics, Section 194-IA still applies at 1%
• Real estate developer revenue recognition under Ind AS 115 — POC computation, contract-liability rollforward, Section 43CB deferred tax
• RERA escrow account reconciliation — 70% rule, CA+CE certification, withdrawal — Section 4(2)(l)(D), MahaRERA / UP-RERA / K-RERA variations
• TDS on property purchase — Section 194-IA Rs 50 lakh threshold, Form 26QB — buyer-side 1% TDS, GST-inclusive base per CBDT Circular 8/2013
• Preferential location charges (PLC) — GST composite-supply treatment — floor-rise, park-facing, corner-unit PLC bundled with under-construction flat

Terra Insight Editorial Team Reconciliation Infrastructure

Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →

Published 9 September 2026

Domain expertise

TDS Reconciliation GST Input Credit Platform Settlements NACH Batch Matching Bank Reconciliation Form 26AS Matching ERP Integrations Enterprise Finance Ops

Reviewed by

NK

Navin Krishnan

Managing Director & Founder — Terra Insight

Ex Amazon India · Intuit QuickBooks · Tata nexarc

ISO 27001:2022 Patent Pending Incorporated 2024