GST on Commercial Property – Tax Rules, Rates & Exemptions

Rahul spends ₹1,00,00,000 on purchasing a commercial property in Haridwar, which does not include the GST. He needs to pay GST amounting to 18% over this amount.
 

So, Rahul pays a total of ₹1,18,00,000. The GST is paid to the government, and the seller collects it on behalf of the government. Always check the GST amount before purchasing to avoid any surprises.

When you buy a commercial property, you must pay GST (Goods and Services Tax). The GST rate is usually 18% on the property value.

GST on Commercial Property

You need to add Goods and Services Tax (GST) when you purchase a commercial property. GST is charged according to the type of property it is and how much it is valued. The explanation is provided below.

GST Rates for Different Commercial Propertie
 

Example: Rahul Buys a Commercial Property
 

• Rahul buys an under-construction commercial property in Haridwar for ₹1,00,00,000.
   
• Since it is under construction, 18% GST applies.
   
• Total GST = ₹18,00,000 (18% of ₹1,00,00,000).
   
• The final price Rahul pays = ₹1,18,00,000.

Key Points to Remember
 

• No GST on ready-to-move commercial properties (if a completion certificate is issued).
   
• GST is 18% if the property is under construction.
   
• Renting out a commercial property also attracts 18% GST on rent.
   
• Always ask the seller if GST is included or extra to avoid confusion.

This helps buyers like Rahul plan their budgets correctly.

HSN Codes for Property
 

HSN (Harmonised System of Nomenclature) helps in sorting goods and services for GST applications. These are the HSN codes commonly used for properties of different types:

HSN Codes for Different Property Types:
 

Example: Rahul’s Commercial Property Purchase
 

• Rahul buys an under-construction commercial property in Haridwar.
   
• The HSN code 9972 applies, and 18% GST is charged.
   
• If he rents it out later, the same HSN code (9972) will apply, and 18% GST will be charged on the rent.

Key Points to Remember:
 

• HSN 9972 covers most real estate services, including sale and rent.
   
• HSN 9954 is used for construction services.
   
• Residential properties under construction have lower GST rates (5% or 1%).
   
• Ready-to-move properties (with a completion certificate) do not attract GST.

This helps buyers like Rahul understand tax rules before investing in property.

Types of Property and Their GST Applicability

When buying or renting a property in India, GST (Goods and Services Tax) applies differently based on the property type and its condition. Below is a simple breakdown of GST rates for different properties:

GST Rates for Different Property Types:
 

Example: Rahul Buys a Property
 

• Rahul wants to buy a commercial shop in Haridwar.
   
• The shop is under construction, so 18% GST applies to the purchase price.
   
• If the shop was already completed, no GST would be charged.
   
• Later, if Rahul rents out the shop, he must charge 18% GST on the rent.

Key Points to Remember
 

• No GST on completed properties (residential or commercial) if the builder has received a Completion Certificate.
   
• Under-construction properties attract GST (5% for residential, 18% for commercial).
   
• Renting commercial property always has 18% GST.
   
• Land purchases (without construction) are GST-free.
   
• Always check if the price includes GST or if it is extra.

This helps buyers like Rahul understand taxes before investing in property.

Impact of GST on the Property Industry

Some things in the property sector are now clearer because of GST, but there are also some new rules in place. This is how buyers, sellers and builders feel the effects of inflation:

• Simplified Taxes: Earlier, buyers paid multiple taxes like VAT, service tax, and stamp duty. Now, GST combines most taxes into one, making calculations easier.

• Higher Costs for Under-Construction Properties: GST applies to under-construction properties (5% for residential, 18% for commercial), increasing the total price. 

• Input Tax Credit (ITC) for Builders: Builders can claim GST paid on materials like cement and steel, reducing costs. This benefit may lower prices for buyers if passed on.

• Rental Income Tax: Renting commercial property attracts 18% GST, which landlords must charge tenants. Residential rentals are usually GST-free unless used for business.

Example: Rahul’s Experience

Under construction, he purchased an office for the price of ₹1 crore. The actor ended up paying 18% GST (₹18,00,000), and the final amount was ₹1.18 crore. If the property had been done, he would have only used stamp duty and avoided GST. 

He then decides to charge ₹50,000/month, collect an 18% GST (which equals ₹9,000), and the tenant will now load up their wallets with ₹59,000 per month.

GST makes taxes clearer, but can increase costs for under-construction properties and rentals. Buyers should check the GST rules before investing.

Input Tax Credit (ITC) on Property

• What is ITC? Builders can claim back GST paid on construction materials like cement, steel, etc.
   
• Benefit for Buyers? If builders pass on ITC savings, property prices may be reduced.
   
• Residential Property Buyers don't get ITC, but builders can use it to lower costs.
   
• Commercial Property Business buyers can claim ITC on GST paid during purchase.

Example: Rahul's Office Purchase
 

• Rahul buys new office space for ₹1 crore + 18% GST (₹18 lakh).
   
• As a business owner, he claims ₹18,00,000 as ITC against his business GST.
   
• This reduces his final property cost.

Note: ITC only works for commercial properties, not residential. Always check GST rules before buying.

Conclusion 

Things are slightly more complex when it comes to GST on commercial property, and it is worth digesting. You are likely to have to register and be subject to GST when you buy, sell or hire commercial property. The brightest of it all is that you usually have credits available on expenses related to GST you realise. 

Nonetheless, guidelines are not always the same, and it would be better to consult a tax guru and not to make a ham-fisted error. Being a business owner or an investor, the way GST works allows you to think better and not have any surprises. To comply, always maintain good records and be abreast with changes in tax laws.

FAQS

1. Does GST apply when buying a commercial property?

Yes, GST applies at 18% if the property is under construction. Ready-to-move properties with completion certificates don’t attract GST.

2. Who pays GST – the buyer or the seller?

The buyer pays GST, but the seller collects and deposits it with the government.

3. Is GST charged on renting commercial property?

Yes, 18% GST applies to rent for commercial properties. The landlord must charge and pay this tax.

4. Can I claim an Input Tax Credit (ITC) on GST paid for commercial property?

Yes, if you are a registered business, you can claim ITC on GST paid during purchase or construction.

5. What if I buy a completed commercial property?

No GST is charged if the property is complete and has a completion certificate. Only stamp duty and registration fees apply.

6. How is GST calculated on the under-construction property?

GST is 18% of the property value (excluding land value). For example, on ₹1 crore, GST would be ₹18,00,000.

7. Is there GST on the resale of commercial property?

No, GST does not apply to resale. Only capital gains tax and stamp duty apply.

8. Do I need to pay GST if I lease my property long-term?

Yes, 18% GST applies on lease rentals for commercial properties, whether short-term or long-term.

9. Are there any GST exemptions for small commercial properties?

No, GST applies to all commercial properties, regardless of size or value.

10. Can I avoid GST by buying land and constructing later?

Buying just land has no GST, but construction will attract 18% GST on materials and labour.

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