GST on Residential Real Estate Projects and Land Value Deduction
Developers must use the mandatory one-third land deduction for GST and cannot split land and construction agreements to claim input tax credit.
- Ruling
- Advance Ruling No. 1/ARA/2026, dated 08.01.2026
- Dated
- 08 Jan 2026
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Residential projects starting after April 1, 2019, must follow the mandatory tax scheme.
- GST rates are 1.5% for affordable and 7.5% for non-affordable housing.
- Input tax credit cannot be claimed under this mandatory scheme.
- Land value deduction is fixed at one-third, regardless of the actual sale deed value.
In short
The company asked if they could separate land sales from construction agreements to pay 18% GST while claiming input tax credit. They also asked if they could deduct the actual land value from their tax bill instead of the standard one-third deduction. The Authority for Advance Ruling (AAR) decided that these transactions are linked and must follow the mandatory real estate tax rules.
What has changed
How it worked before
Some businesses believed they could use separate agreements to opt for the 18% GST rate with input tax credit, or use the actual land value from a sale deed to reduce their tax liability.
What has changed
The ruling confirms that for projects started after April 1, 2019, developers must pay 1.5% or 7.5% GST without input tax credit. It also mandates that the land value deduction is strictly one-third of the total amount, meaning you cannot use the actual land price even if it is higher.
Who this affects
Real estate developers and builders managing residential projects that began after April 1, 2019.
An example
A developer builds a residential complex and signs a land sale deed and a construction agreement on the same day. They want to pay 18% GST on the construction part to claim back taxes paid on materials. This ruling suggests they cannot do this and must instead pay the 1.5% or 7.5% rate without claiming any input tax credit.
What you should do
Review your current tax structure to ensure it aligns with the mandatory scheme for residential projects. Remember that an advance ruling only applies to the business that requested it; your local tax officer may have a different view, so consult with your tax advisor before changing your filing method.
If you do nothing
If you assume this ruling allows you to split agreements or use actual land values, you risk tax demands, interest, and penalties. A tax officer may reject your filings and insist on the mandatory one-third deduction, leading to unexpected tax liabilities. Always verify your specific project status with a professional.
The terms explained
- Input tax credit
- The tax a business pays on its purchases that it can use to reduce the tax it owes on its sales.
- Advance ruling
- A formal decision by tax authorities on how GST laws apply to a specific business's situation.
- Abatement
- A reduction in the taxable value of a service, in this case, the portion of the price attributed to land.
The ruling in detail
Authority for Advance Ruling
M/s. JAYPEE ENTERPRISES
Advance Ruling No. 1/ARA/2026, dated 08.01.2026 · Tamil Nadu
Questions before the authority
- Whether the actual value charged for 'transfer of land' is available as per sale deed and the actual value for construction of residential houses is available as per construction agreement, can GST be charged @ 18% as per Entry No. 3(xii) of Notification No. 11/2017-CT(Rate) r/w Notification No. 11/2017-ST(Rate) only on the amount charged in construction agreement(with corresponding benefit of input tax credit) instead of charging GST @ 1.5%/7.5% as per Entry No. 3(i) and 3(ia) on 'total amount charged' as per Notification No. 11/2017-CT(Rate) r/w Notification No. 11/2017-ST(Rate);
- If GST is to be charged @ 1.5%/7.5% as per Entry No. 3(i) and 3(ia) as per Notification No. 11/2017-CT(Rate) r/w Notification No. 11/2017-ST (Rate) without input tax benefit, can the 'amount charged for the transfer of land' at least be considered as per sale deed instead of deemed value of one third of total amount charges?
Facts
The applicant purchases land, develops residential layouts, and enters into a Memorandum of Understanding (MOU) with prospective buyers for both the sale of land and the construction of residential houses. Pursuant to the single MOU, two separate agreements—a sale deed for the plot and a construction agreement—are executed with the buyer on the same day. The applicant sought clarity on whether it could opt to pay GST at 18% with ITC solely on the construction agreement value, or alternatively, whether the actual land value stated in the registered sale deed could be deducted instead of the statutory one-third deemed deduction.
Ruling
| Question | What the authority ruled |
|---|---|
| Applicability of 18% GST with ITC on construction value vs 1.5%/7.5% rate without ITC under Entry 3(i)/(ia) | 1.5% (effective 1%) for affordable and 7.5% (effective 5%) for other residential apartments without ITC Applicant commenced construction post 01-04-2019 and did not have an option to exercise the old rate under item (ie) or (if) |
| Deduction of actual land value per sale deed versus deemed one-third deduction | Only one-third deduction permissible Taxable value must strictly follow Para 2 of Notification No. 11/2017-CT (Rate) as amended by Notification No. 03/2019-CT (Rate) |
The Authority held that the applicant is governed by the mandatory post-01.04.2019 real estate tax structure and must pay **GST at 1.5% for affordable and 7.5% for non-affordable residential apartments** without input tax credit, subject to prescribed conditions. It further ruled that the taxable value must be determined strictly under Paragraph 2 of Notification No. 11/2017-Central Tax (Rate), permitting **only a one-third deduction** of the total amount charged towards land value, irrespective of the actual land value declared in the sale deed.
Reasoning
The Authority observed that executing both the sale deed and the construction agreement on the same day pursuant to a single MOU constitutes a single integrated transaction for the supply of a residential house. Because construction commenced after 01.04.2019 in a Residential Real Estate Project (RREP), the scheme introduced by Notification No. 03/2019-CT (Rate) is mandatory, eliminating the option to pay 18% with ITC under residual entries. Regarding land valuation, the Authority adhered strictly to Paragraph 2 of Notification No. 11/2017-CT (Rate) and CBIC clarification F. No. 354/32/2019-TRU, holding that advance ruling authorities cannot depart from the statutory one-third deemed deduction mechanism despite the applicant's reliance on Gujarat High Court ruling in Munjal Manishbhai Bhatt.
Provisions relied on
- Notification No. 11/2017-CT (Rate) dated 28-06-2017 (Items 3(i), 3(ia), 3(xii), and Paragraph 2)
- Notification No. 03/2019-CT (Rate) dated 29-03-2019
- Section 97 of the CGST Act, 2017 / TNGST Act, 2017
- Schedule II, Entry 5(b) of the CGST Act, 2017
- Schedule III, Entry 5 of the CGST Act, 2017
- Section 2(zk) and 2(zn) of the Real Estate (Regulation and Development) Act, 2016
For the practitioner
Confirms that for residential projects commenced after 01.04.2019, developers cannot split transactions into separate land and construction agreements to claim 18% GST with ITC or exclude actual land values. Practitioners should note that the AAR refused to apply the Gujarat High Court decision in **Munjal Manishbhai Bhatt**, strictly enforcing the **statutory one-third land abatement** over actual sale deed values.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/1-jaypee_enterprises_aar_order_compressed.pdf
Legibility of the scan, as read: high.
Prepared 12-10-2026.
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