GST on MHADA flats and additional FSI: Maharashtra Advance Ruling
The Maharashtra Authority for Advance Ruling decided that mandatory MHADA flat sales are taxable works contracts, not exempt property sales.
- Ruling
- NO. GST-ARA-42/2021-22/B-54 dt. 30.03.2026
- 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
- Builders must pay GST on flats reserved for MHADA-identified buyers.
- Additional FSI received is considered non-monetary payment for construction.
- GST applies because consideration was received before the Occupancy Certificate.
- Valuation must use open market rates, not MHADA-mandated prices.
In short
The company asked if selling flats to MHADA-identified buyers after receiving an Occupancy Certificate (OC) is exempt from Goods and Services Tax (GST). They argued that since the sale happened after the building was complete, it should be treated as a simple sale of land and building, which is not taxable. The Authority disagreed, ruling that the builder received payment in the form of extra Floor Space Index (FSI) at the start of the project.
What has changed
How it worked before
Many developers assumed that selling flats after obtaining an Occupancy Certificate was exempt from GST, regardless of whether the flats were part of a mandatory government housing quota.
What has changed
The Authority ruled that the construction of these flats is a 'works contract service' because the builder received non-monetary payment (extra FSI) before the building was finished. This means the sale is taxable. Furthermore, the value for tax purposes is the market price of similar flats, not the lower price set by MHADA.
Who this affects
Builders and developers in Maharashtra who are required to reserve a portion of their project for government-mandated affordable housing in exchange for extra FSI.
An example
A developer in Pune agrees to build 20% of their flats for MHADA in exchange for extra FSI. They sell these flats at the government-mandated price after the OC is issued. Based on this ruling, the tax department may argue the developer owes GST on the difference between the MHADA price and the market value of similar flats in the same building.
What you should do
This ruling only applies to the specific company that asked the question. If you are a developer in a similar situation, you should consult your tax advisor to review your specific development agreement, as this ruling is not a general law that applies to all builders automatically.
If you do nothing
If you assume this ruling does not apply to you and stop paying GST on these units, you risk a tax audit. If the department disagrees with your position, you may face demands for unpaid tax, interest, and significant penalties. Relying on a ruling that does not cover your specific contract can lead to costly legal disputes.
The terms explained
- Non-monetary consideration
- Payment received in a form other than cash, such as extra building rights or FSI, which the tax department treats as taxable income.
- Works contract service
- A contract that involves both the supply of goods and services, such as building a flat where the builder provides both materials and labor.
- Open market value
- The price a property would sell for in an open, competitive market between unrelated buyers and sellers.
The ruling in detail
Authority for Advance Ruling
M/s. Vedant Construction
NO. GST-ARA-42/2021-22/B-54 dt. 30.03.2026 · Maharashtra
Questions before the authority
- Whether supply of flats to MHADA identified customers after Occupancy Certificate (OC) is exempted from levy of GST being it is sale of immovable property which is not liable to GST?
- In these circumstances if it is treated and held as taxable supply assuming that being "services of works contract service" is rendered to MHADA identified 20% flats then what is the value of supply for GST? Whether it is MHADA dictated value of supply or Market value of supply?
Facts
The applicant is a builder who, as a condition for receiving additional FSI from the local authority, was required to reserve 20% of the constructed flats for MHADA-identified beneficiaries at government-mandated prices. The applicant argued that since these flats were sold after the Occupancy Certificate was received and no consideration was received prior to that date, the transaction constitutes a sale of immovable property outside the scope of GST. The applicant further contended that the MHADA-prescribed price should be considered the open market value for GST purposes.
Ruling
| Question | What the authority ruled |
|---|---|
| Exemption of supply of flats to MHADA customers post-OC | Answered in the negative; it is a taxable supply of works-contract service. Not excluded by Para 5 of Schedule III. |
| Valuation of supply for GST | To be determined under Rule 27(a) of the CGST Rules, 2017 as the open market value. The MHADA-prescribed price cannot be adopted as the open market value. |
The Authority ruled that the supply of these flats is a taxable supply of works contract service and not a sale of immovable property. It held that the additional FSI received at the commencement stage constitutes non-monetary consideration, thereby disqualifying the transaction from the exemption under Schedule III. Consequently, the value of supply must be determined based on the open market value of comparable flats sold to non-MHADA buyers, rather than the MHADA-prescribed price.
Reasoning
The Authority determined that the construction obligation was a pre-condition for the grant of additional FSI, which constitutes **non-monetary consideration** received at the inception of the project. Because consideration was received prior to the issuance of the Occupancy Certificate, the transaction falls within the scope of **works contract service** under Section 2(119) and Para 5(b) of Schedule II of the CGST Act. Since the consideration is not wholly in money, the valuation must be determined under Rule 27(a) of the CGST Rules, 2017, using the open market value of comparable flats sold to non-MHADA buyers.
Provisions relied on
- Section 2(119) of the CGST Act
- Section 7(1)(a) of the CGST Act
- Section 15(1) of the CGST Act
- Section 15(2)(e) of the CGST Act
- Para 5(b) of Schedule II of the CGST Act
- Para 5 of Schedule III of the CGST Act
- Rule 27(a) of the CGST Rules, 2017
For the practitioner
This ruling clarifies that developers cannot claim the 'sale of immovable property' exemption for mandatory affordable housing units if they received **non-monetary consideration** (such as additional FSI) at the project's inception. Practitioners should note that the Authority will look past the date of the sale agreement to the underlying contractual obligations. It settles that the **open market value** for such units must be based on comparable market transactions, not the government-mandated price.
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/7-vedant_construction_ara_order_compress.pdf
Legibility of the scan, as read: high.
Prepared 11-10-2026.
About Patron Accounting LLP
Patron Accounting LLP is a CA and CS-led accounting and compliance firm that has been working with businesses across India since 2019. We handle the work that keeps a company correct with every department it answers to: day-to-day bookkeeping and accounting, GST registration and returns, income tax filing and assessments, TDS, payroll and PF/ESI, company and LLP incorporation, ROC and MCA compliance, statutory and internal audit, physical stock and inventory audits, trademark and other registrations, and the certificates and reports that banks, buyers and regulators ask for.
Our clients range from a first proprietorship registering for GST to established companies running operations across several states. Much of our work is exactly this: reading what a department has published and telling a business, in plain terms, whether it changes anything for them.
We operate from five offices and serve clients across the rest of India remotely:
- Pune (HQ): RTC Silver, B4-708, Sai Satyam Park, Wagholi, Pune, Maharashtra 412207
- Mumbai: 104, Rajshila Building, 597 J.S.S. Road, Marine Lines, Mumbai 400002
- Delhi: 3rd Floor, B-6/154-155, Sector 5, Rohini, Delhi 110085
- Gurugram: Pioneer Urban Square, B109, Golf Course Ext Road, Sector 62, Gurugram 122098
- Ahmedabad: Phoenix Tower, 1107, near Commerce Six Road, Drive In Road, Navrangpura, Ahmedabad, Gujarat 380009
If anything on this page affects you and you would like somebody to look at your own position, we are glad to help. Call +91 94594 56700, write to sales@patronaccounting.com, or visit patronaccounting.com. The first conversation costs nothing.