GST on Sale of Land and Under-Construction Buildings
The Delhi Authority for Advance Ruling decided that selling land and a building together is a single service subject to GST.
- Ruling
- Advance Ruling No. 03/DAAR/2018 dated 28.03.2018
- Dated
- 28 Mar 2018
- 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
- Developers cannot split land and building sales into separate agreements to avoid GST.
- Construction of a building for sale is classified as a service.
- One-third of the total price is deemed to be the value of land.
- GST applies to the remaining two-thirds of the total amount charged.
In short
A developer asked if they could avoid Goods and Services Tax (GST) by signing two separate contracts—one for the land and one for the building. The authority ruled that because the land and the building are sold together as part of a construction project, they must be treated as a single service. You cannot separate them to lower your tax bill.
What has changed
How it worked before
Some businesses assumed that by drafting separate agreements for land and construction, they could treat the land portion as exempt from GST.
What has changed
The authority confirmed that construction projects are 'composite supplies.' This means you must pay GST on two-thirds of the total price, while one-third is automatically excluded as the value of the land. This ensures a consistent tax treatment for all developers selling residential units.
Who this affects
Real estate developers and builders who sell residential units under construction.
An example
A developer named 'BuildRight Homes' sells a flat for 90 lakhs. They want to charge GST only on the building portion. Based on this ruling, they must pay GST on 60 lakhs (two-thirds of the total price). The remaining 30 lakhs is treated as the land value and is not taxed.
What you should do
If you are a developer, you must apply the one-third land abatement to your total project value. Remember that an Advance Ruling only binds the person who asked and their specific tax office. It is not a law that applies to every business, so consult your tax advisor before changing your billing structure.
If you do nothing
If you ignore this and do not pay tax on the two-thirds portion, your local tax officer may issue a demand notice for the unpaid GST plus interest and penalties. Relying on a ruling that does not apply to your specific case can lead to costly legal disputes. Always verify your tax position with a professional.
The terms explained
- Composite supply
- A package of goods or services sold together that are naturally bundled. In this case, the land and the building are considered one single service.
- Abatement
- A reduction in the amount of money that is subject to tax. Here, one-third of the total price is removed from the tax calculation.
- Deemed value
- A value assigned by the government for tax purposes, regardless of the actual price stated in a contract.
The ruling in detail
Authority for Advance Ruling
Shri Sanjeev Sharma
Advance Ruling No. 03/DAAR/2018 dated 28.03.2018 · Delhi
Questions before the authority
- Whether GST will be applicable on the sale of undivided and impartible share of land represented by Agreement to sell the land?
- Whether GST shall be applicable on sale of superstructure (which is under construction)?
- If yes: i. What will be the value on which tax is payable? ii. What would be the applicable rate for charging GST?
Facts
The applicant plans to develop and sell residential houses in India. The business model involves either purchasing land or entering into collaboration agreements with land owners to develop and sell units. The applicant intends to execute two separate agreements for each transaction: one for the sale of an undivided share in land and another for the sale of the superstructure.
Ruling
| Question | What the authority ruled |
|---|---|
| GST on sale of undivided share of land | Not applicable Sale of land is outside the scope of supply under Schedule III |
| GST on sale of superstructure | Applicable Treated as a composite supply of construction services |
| Value and rate of tax | Taxable on two-thirds of total amount at 18% (9% CGST + 9% SGST) One-third of total amount is deemed value of land |
The authority ruled that for the construction of a complex or building intended for sale, the supply is a composite supply. GST is payable on two-thirds of the total amount charged, with one-third of the total amount deemed to be the value of land and excluded from the tax base. The applicable rate of GST on the taxable portion is 9% CGST and 9% SGST.
Reasoning
The authority relied on Section 7(1)(d) and Paragraph 5(b) of Schedule II of the CGST Act, which classify construction of a complex intended for sale as a supply of services. It determined that the transaction is a composite supply where the land and superstructure are inseparable. Applying Notification No. 11/2017-Central Tax (Rate), it held that the **deemed value of land** is one-third of the total amount charged. Consequently, GST is leviable on the remaining two-thirds of the consideration under the authority of Section 15(5) of the CGST Act.
Provisions relied on
- Section 7 of the CGST Act, 2017
- Section 15 of the CGST Act, 2017
- Schedule II of the CGST Act, 2017
- Schedule III of the CGST Act, 2017
- Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017
For the practitioner
This ruling clarifies that developers cannot avoid GST on construction projects by splitting agreements into separate land and superstructure components. It confirms the **mandatory one-third abatement** for land value in composite construction contracts. Practitioners should note this settles the valuation methodology for such projects under the 2017 GST framework.
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/delhi-order-3.pdf
Legibility of the scan, as read: high.
Prepared 16-10-2026.
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