The Goods and Services Tax (GST) applies to under-construction properties at a rate of 12%, while completed properties are exempt. Recent changes have reduced tax rates for affordable homes to 1% (previously 8%) and for other residential properties to 5% (previously 12%), provided builders forgo Input Tax Credit (ITC) claims. Additionally, services involved in land plot development under a works contract are taxed at 18% GST. It's important to note that indirect taxes are applied alongside traditional stamp duty and registration fees.

Taxation of Land Sales Before GST

Prior to the introduction of GST, Value Added Tax (VAT) was imposed on the sale of movable goods. As land is classified as immovable property, it was not subject to VAT. Instead, sales of immovable properties incurred stamp duties.

GST Applicability and Exemptions for Land Sales

According to Schedule III of the CGST Act, the sale of land is neither classified as a supply of goods nor services. Since land is an immovable asset, its direct sale solely attracts stamp duty, making it exempt from GST. Nevertheless, a ruling by the Gujarat Authority for Advance Ruling (AAR) clarified that GST exemption on land sales applies only when the transaction exclusively involves the transfer of land ownership. If the transaction encompasses additional services, such as the provision of electricity lines, water lines, drainage systems, or land leveling, as seen in developed plots, GST becomes applicable. This is because the construction of developed plots or similar structures falls under Schedule II Para 5 Clause (b) of the CGST Act, which mandates GST, unless the full payment for the land is received after the issuance of the completion certificate. Therefore, the specific nature of the transaction is crucial. If a seller charges for land sale alongside common amenities, it is deemed a service and thus subject to GST. Further details on GST applicability for developed land plots are covered in subsequent sections.

Valuing, Timing, and Locating Land Supply Under GST

Under GST regulations, the Value of supply represents the price a seller charges for goods or services. Since land is an immovable asset, its direct sale is not subject to GST. Nevertheless, if a transaction constitutes a composite supply, including land and shared amenities like in developed plots, GST will be levied on the portion of the charge attributable to these supplementary services and facilities. The Place of Supply for most GST transactions is typically the recipient's location. However, for services linked to immovable properties, the location of the property itself determines the place of supply. The Time of Supply for services is determined by: 1. The earlier of the invoice date or the payment receipt date. 2. If an invoice is not issued within the timeframe specified by Section 31(2), then the earlier of the service provision date or the payment receipt date. 3. The date the recipient records the service in their accounting books, if neither of the above clauses applies.

Input Tax Credit Provisions for Land Supply Under GST

Based on Section 17(5) of the CGST Act, Input Tax Credit (ITC) cannot be claimed on goods or services acquired by a taxable individual for the construction of immovable property (excluding plant and machinery), even when such property is utilized for business expansion. Construction can be carried out either by the owner or a third party. When a third party performs construction: ITC is disallowed for works contract services provided for constructing immovable property, with the exception of plant and machinery. ITC eligibility is restricted to persons operating in the same business line who utilize such services for subsequent provision of works contract services. Therefore, ITC on works contract services for immovable property construction is not permitted if the cost is capitalized; however, it can be claimed if the expense is revenue-related. For owner-driven construction: If a taxable person undertakes construction for their own use, even for business furtherance, ITC remains unavailable for inward supplies used in creating an immovable property.

GST Implications on Developed Plot Sales

Under Schedule III of the CGST Act, GST is not applicable to land sales only if the transaction solely involves transferring the ownership of land, which is considered an immovable asset. The nature of the agreement must exclusively pertain to the plot's sale. However, if the plot seller provides essential utilities like water, drainage, electricity lines, or land leveling, the transaction is reclassified as a supply of services. Hence, the underlying intent of the agreement between the parties is critical. If the seller's charges are based on the super built-up area rather than the precise plot measurement, it implies the inclusion of standard amenities such as roads, drainage, and water lines. Such transactions are not treated as pure land sales but rather as the sale of a developed plot, which constitutes the provision of services. Furthermore, Schedule II, clause 5(b) of the CGST Act states that the construction of any complex, building, or civil structure intended for future sale is deemed a supply of service and is thus subject to GST.

GST Implications for Renting and Leasing Land

Within the GST framework, 'supply' encompasses various transactions involving goods, services, or both, including sales, transfers, barters, exchanges, leases, rentals, or disposals made for a consideration in the course of business activities. Consequently, both renting and leasing of land are classified as a supply under GST and are therefore taxable. Schedule II, Para 2 (a) of the CGST Act specifies that any lease, tenancy, or license to occupy land is treated as a supply of service. Long-term leases of land, where a one-time premium is paid for a duration of 30 years or more, attract an 18% GST, as affirmed by a Bombay High Court decision. Short-term leases are also subject to an 18% GST. Nevertheless, certain categories of land leasing are exempt from GST, including: 1. Upfront payments for long-term leases of industrial plots or infrastructure development plots for financial businesses, provided by Central or State Governments or entities with at least 20% government ownership. 2. The renting or leasing of agricultural machinery. 3. The renting or leasing of any vacant land, regardless of incidental structures, for specific uses. Hence, land leasing for agricultural production by farmers and industrial plots for financial infrastructure development are exempt from GST. Conversely, leasing vacant land for commercial activities is taxable. Regarding Input Tax Credit (ITC), GST paid on lease rent is generally eligible for ITC.