Thinking of buying a ready-to-move flat? Think again—because if you book it before construction wraps up, you might still be liable to pay GST.
In a landmark decision, the Karnataka High Court has held that GST is applicable on residential properties if consideration is paid before construction is completed. This verdict clarifies a grey area that has affected thousands of homebuyers, especially in government-allotted flats.
Let’s break it down in simple terms 👇
🧾 The Case: B.G. Parmeshwara v. BDA
- Citation: 2025 LiveLaw (Kar) 120
- Court: Karnataka High Court
- Judgement Date: March 27, 2025
- Key Finding: GST liability arises if part payment is made before completion, even if the buyer assumes the flat is ready.
🏗️ Timeline of Events
| Event | Date |
|---|---|
| BDA issues ad inviting buyers | 09.08.2017 |
| Petitioner applies for flat | 28.03.2018 |
| Completion of construction | 31.12.2018 |
| GST demanded | ₹5,28,000 (12% on ₹44 lakhs) |
The buyer had already paid 4 installments before the flat was fully built—making it taxable under Schedule II read with Section 7 of the CGST Act, 2017.
⚖️ Legal Position on GST and Property Sales
✅ Applicable:
If any payment is made before the completion certificate is issued.
❌ Not Applicable:
If the entire agreement is entered into after the flat is fully constructed and possession-ready.
📚 Cited Authorities:
- Larsen & Toubro Ltd. v. State of Karnataka, 2013 (SC): Clarifies what qualifies as a works contract.
- Section 7 + Schedule II of CGST Act, 2017: Defines supply of service via works contract.
🔍 Key Observations by Karnataka High Court
- Mere advertisement claiming ready-to-move status doesn’t override actual construction status.
- Payment schedules and certificates are proof of ongoing construction.
- GST is justified when part consideration is received during construction.
🤔 FAQs Based on “People Also Ask”
Q1. Is GST applicable on ready-to-move flats?
A: No, if the agreement is post-completion. But if booked before construction completion, GST applies.
Q2. How much GST is charged on under-construction property?
A: 12% with ITC (Input Tax Credit) for most residential properties. It varies if affordable housing norms apply.
Q3. Can buyers claim input credit on GST paid?
A: No, homebuyers (end consumers) cannot claim ITC, only builders can.
🧠 Expert Insight: What This Means for Buyers
“Buyers should verify the construction status and payment milestones before signing up. Just because a flat is advertised as ‘ready-to-move’ doesn’t exempt it from GST liability,” says CA Arjun Iyer, Tax Consultant at Efiletax.
📌 Takeaways for Buyers & Real Estate Professionals
🏢 For Homebuyers:
- Always ask for completion certificate and check payment timelines.
- If payments are made during construction, be ready to pay GST.
- Legal recourse may not succeed if proof of under-construction payment exists.
🏗️ For Builders/Authorities:
- Must clearly declare construction status in communications.
- Adherence to RERA & GST disclosures is crucial to avoid litigation.