GST on Society Redevelopment in Mumbai: What Members Must Know

When your building is redeveloped, GST (Goods and Services Tax) can apply to the construction work — but not to every part of the deal, and usually not as a separate bill that lands on a member who is simply getting a like-for-like flat back. GST replaced the older service tax and state VAT from 1 July 2017 and is charged on construction as a service. The flat your society hands back to you (the “rehab” or rehabilitation flat) is treated differently from the extra flats a developer builds to sell in the open market, and a fully-completed flat sold after its completion certificate carries no GST at all. This guide explains, in plain language, where GST fits in a Mumbai society redevelopment, who normally bears it, and the exact clauses to pin down in your Development Agreement (the master contract between your society and the developer) before you sign.

What changed in 2017: GST replaced the old taxes

Before July 2017, an under-construction flat in Maharashtra attracted two separate taxes — service tax (a central tax on the construction service) and VAT (a state tax). This was confusing, and the two often overlapped. From 1 July 2017, both were merged into a single GST. So for any redevelopment moving ahead today, GST is the relevant construction tax; service tax and VAT no longer apply. This is the current position, and it is the one your society should plan around.

One more thing changed along the way. When GST first started, construction attracted a higher rate but the developer could claim “input-tax credit” (a set-off for the GST the developer itself paid on cement, steel and other inputs). From April 2019 the structure was revised: residential construction now generally attracts a lower, concessional rate without input-tax credit, with an even lower rate for qualifying affordable housing. There is no single GST rate for “redevelopment”. The rate depends on which entry of the rate notification your flat falls into, and the sections below set out those entries, the test that decides which one applies to you, and the value the rate is applied to. Rate entries are changed by notification, so a practising Chartered Accountant (CA) must confirm the entry in force on the day you sign — but you should walk into that meeting already knowing the arithmetic.

The one GST rule that matters most

Here is the single idea that explains almost everything about GST in redevelopment: GST is charged only while a building is under construction. A completed flat is not taxed under GST at all.

This is not a practice or a custom — it is written into the statute. Under paragraph 5 of Schedule III to the Central Goods and Services Tax Act, 2017, the sale of land and the sale of a building are treated as neither a supply of goods nor a supply of services, so they sit entirely outside GST. The one carve-out is in paragraph 5(b) of Schedule II: construction of a complex or building intended for sale to a buyer is a supply of service — except where the entire consideration has been received after the completion certificate is issued, or after first occupation, whichever is earlier.

Read the two together and you get a clean test with a date attached. If any part of the money is due before the completion certificate, GST applies. If every rupee falls after it, GST does not. Keep this line in mind as you read on — every part of a redevelopment sits on one side of it or the other. It also tells you exactly which document settles an argument: the completion certificate and the payment schedule in your agreement, nothing else.

Source: Central Goods and Services Tax Act, 2017 — Schedule III, entry 5, read with Schedule II, entry 5(b). In Maharashtra an intra-state supply carries CGST plus an equal SGST under the Maharashtra Goods and Services Tax Act, 2017, so every combined rate quoted below is made up of two equal halves.

Redevelopment has two kinds of flats

A society redevelopment produces two very different kinds of flats, and GST treats them differently.

1. Rehab (member) flats

These are the flats the developer builds to give existing members back — usually your old carpet area plus an agreed extra percentage, handed over “free” in exchange for the society parting with development rights and the additional building potential on the plot. In tax language this is a barter: the members give development rights (and any TDR — Transferable Development Rights — loaded onto the plot), and the developer gives construction in return. Tax authorities have framed special valuation and reverse-charge rules for this exchange of construction against development rights. For most members receiving a same-size replacement flat, the practical result is that the developer accounts for this GST rather than the member getting a separate bill — but this is a technical and litigated area, so it must be spelled out in your agreement and checked with a CA.

2. Sale (open-market) flats

These are the extra flats the developer builds on the freed-up building potential and sells to outside buyers to fund the project and make a profit. If an outside buyer books such a flat while it is still under construction, GST applies to that sale in the normal way — and it is the outside buyer, not your society, who pays it. If a flat is sold only after the completion certificate, no GST applies. As a member, sale flats rarely put GST in your pocket; they matter mainly because they decide how financially strong the offer is.

On what value is GST charged — not on the whole price

This is the single most useful thing to know before you discuss money with a developer, and it is the part almost never explained. Where a construction supply also involves the transfer of land or an undivided share in land — which is every flat in Mumbai — the law does not tax the whole amount you pay. Under paragraph 2 of Notification No. 11/2017-Central Tax (Rate) dated 28 June 2017, the value of the land is deemed to be one-third of the total amount charged. The rate is applied only to the remaining two-thirds.

So the arithmetic always runs in the same order: total amount charged → subtract one-third for land → apply the rate to what is left. This is also why two people can quote you different “GST rates” and both be right — one is quoting the rate written in the notification entry, the other the figure it works out to on the full price. Both columns are in the table below, so you can tell which one a developer is using.

Which entry applies, and what each works out to

Source: Notification No. 11/2017-Central Tax (Rate) dated 28 June 2017 as amended with effect from 1 April 2019, read with the matching Maharashtra State Tax (Rate) notification; the deemed one-third deduction for land is paragraph 2 of that notification. Rate entries are changed by notification — use this to know which question to ask, and have your CA confirm the entry in force on the date of your invoice.

The last column is not a technicality. Where input-tax credit is not available, the developer cannot set off the GST he has already paid on cement, steel and contractors — so that tax sits inside the per-square-foot rate he quotes you. A developer who says “GST is only 5%” is describing the visible line on your invoice, not the whole tax cost embedded in the project.

The affordable-housing test, and the rate ceiling it implies

The 1% entry is worth checking, but check it properly. An affordable residential apartment must satisfy both of these, applied to the apartment as a whole and not to the extra slice you buy:

• carpet area not more than 60 sq m — this is the limit for a metropolitan city, and Mumbai, together with the whole Mumbai Metropolitan Region, is a metropolitan city for this purpose; and
• gross amount charged not more than Rs 45,00,000.

In most Mumbai society redevelopments, additional carpet area is sold well above these figures, so the realistic planning assumption is the “other than affordable” row — 7.5% on two-thirds, which is 5% of what you pay. How the two tests apply to a rehabilitation flat, where most of the carpet is handed over free and only a slice is charged for, is genuinely arguable. That is question 3 below, and it should be put to your CA in writing rather than settled by a builder's assurance.

Which parts of your redevelopment attract GST

This table shows, in general terms, where GST typically sits in a Mumbai redevelopment. Treat it as a map, not as a final ruling for your society — your facts and your agreement decide the outcome.

The row most likely to affect your own wallet is the second one — extra area. If you are thinking of buying additional carpet area from the developer, estimate the area and rough cost first with our additional area calculator, and remember to add GST on top of the developer's rate when you budget.

A worked example: the GST on 100 sq ft of extra area

Mrs. Shah owns a 550 sq ft carpet flat. The developer offers 25% extra, so her free rehabilitation flat is about 690 sq ft. She also decides to buy an additional 100 sq ft, and the developer's rate for extra carpet is Rs 30,000 per sq ft. She will separately receive corpus and monthly rent. Only one of these four items produces a GST bill for her, and here is exactly how big it is.

The Rs 30,000 per sq ft rate is an illustration only — put your own developer's quoted rate into line one and the rest follows. The one-third land deduction and the entries are from Notification No. 11/2017-Central Tax (Rate) dated 28 June 2017 as amended with effect from 1 April 2019.

Scale it to your own extra area

The same three steps at other sizes, all at Rs 30,000 per sq ft. Read across your row, then re-run it at your developer's actual rate.

GST worked on two-thirds of the amount charged at the “other than affordable” entry, with no input-tax credit. The last column is Section 194-IA of the Income-tax Act, 1961: where the consideration or the stamp-duty value — whichever is higher — is Rs 50,00,000 or more, the buyer must deduct 1% and deposit it with the Income-tax Department. Watch the stamp-duty value: a Ready Reckoner figure above your negotiated price can push a sub-Rs-50-lakh deal over the line. See our Ready Reckoner guide.

The other three items in Mrs. Shah's deal behave as follows. Her 690 sq ft rehabilitation flat produces no separate GST bill in a normal like-for-like deal — the developer accounts for the GST arising on the exchange of construction for development rights, subject to what the agreement says. Her corpus and monthly rent are money coming to her, not a supply she makes, so they generally sit outside GST; she should still keep clean records. Her stamp duty on the new agreement is a separate levy under the Maharashtra Stamp Act, 1958, unrelated to GST. So the tax that genuinely lands on a member is GST on extra area, and possibly on optional amenities or parking — not on the flat she is entitled to.

GST, income tax and stamp duty are three different taxes

Members often lump every tax together and panic. It helps to separate them clearly, because each is charged by a different authority on a different thing:

• GST — a central tax on construction. Relevant mainly to extra area you buy and to the developer's sale flats.
• Capital-gains tax — income tax on your profit, under Section 45(5A) of the Income-tax Act, 1961; for individuals and HUFs in a registered redevelopment it is triggered only when the completion certificate is issued. There is also a separate 1% TDS (tax deducted at source) rule under Section 194-IA where a property's consideration or stamp-duty value is Rs 50 lakh or more — something to watch when buying substantial extra area.
• Stamp duty — a state tax under the Maharashtra Stamp Act, 1958, on the value of your new agreement, calculated using the Ready Reckoner (the government's Annual Statement of Rates).

They can all touch the same redevelopment, but they never merge into one bill. Keeping them separate stops a developer or broker from over-stating “the taxes” to pad the deal.

Who actually bears the GST?

For the rehab flat, the general and reasonable position is that the developer bears the GST arising from the exchange of construction for development rights, because that GST is a cost of the project the developer has agreed to build. For extra area and optional add-ons, the member usually bears the GST on what they choose to buy. The problem is not the principle — it is silence. Many disputes start because a Development Agreement simply says “taxes as applicable” and no one asked which taxes, on which part, borne by whom. When you compare rival proposals, a deal that clearly makes the developer bear GST on the rehab component is worth more than one that leaves it vague; our offer comparison tool helps you line up such terms side by side.

It is also worth knowing that under the Real Estate (Regulation and Development) Act, 2016 the developer is the “promoter”, and Section 3 bars him from advertising, marketing, booking, selling or offering for sale any flat in the project until it is registered with MahaRERA. The definition of “promoter” in Section 2(zk) is wide enough that where the person who constructs and the person who sells are different, both can be promoters — so ask your lawyer, in writing, whether your society will be named as a co-promoter in the MahaRERA registration, because that decides who is answerable to outside buyers. A GST-registered, MahaRERA-registered developer is the baseline; anyone unwilling to put tax responsibility in writing is a warning sign.

Six questions to put to your CA, with the numbers already filled in

“Consult a Chartered Accountant” is useless advice on its own. What follows is the actual list — six questions, each with a blank you can fill from your own offer letter, and Mrs. Shah's figures shown so you can see what a completed answer looks like. Take this list to the meeting. An hour of a CA's time answering these is worth more than a year of general reading.

Check the developer's GSTIN yourself, before the general body meeting

You do not need a professional for this one, and it takes about two minutes. A GSTIN is 15 characters and it is not random:

Then type the number into Search Taxpayer → Search by GSTIN/UIN on the Government of India GST portal at www.gst.gov.in. It is free and needs no login. Read the legal name of the business, the date of registration and the status — the status must say Active on the day the society signs. A cancelled or suspended registration on a signing day is a fact you want to discover yourself, not from a notice two years later.

The clause to insist on

Do not send your committee into a negotiation with an instruction to “fix the tax clause”. Send them with words. Ask your lawyer to work from something like this, then have your CA read it:

This is a drafting starting point for your own advocate, not a substitute for one. The point is that every phrase in it is checkable: a named party bears a named tax, on a named value, evidenced by a number you can verify online.

What this means for your society

Before your general body approves a developer, make sure the tax position is nailed down in writing. A short checklist:

• Name the tax responsibility. The agreement should state, in plain words, who bears GST on the rehab flat, on any extra area, and on amenities or parking — not a blanket “taxes as applicable” line.
• Confirm registrations. Insist the developer is GST-registered and MahaRERA-registered, with numbers recorded in the agreement.
• Separate corpus and rent. Have corpus, rent and hardship allowance described clearly as payments to members so their tax treatment is not muddled; our possession & corpus guide explains how these work.
• Budget GST on extras, with the figure. Tell members upfront: GST is charged on two-thirds of what they pay, and on the ordinary residential entry that comes to 5% of the full amount. On Rs 30,00,000 of extra area that is Rs 1,50,000. Circulate the number with the offer, not after it.
• Verify the GSTIN before the vote. Two minutes on www.gst.gov.in under Search Taxpayer. First two characters 27, characters 3–12 the same PAN as on the agreement, status Active.
• Get a CA to review the tax clauses before signing — GST on development rights is genuinely technical, and a one-hour review can prevent years of dispute.

Where to find the official rule

GST is a central tax. The rate and the special rules for construction and for development rights are decided by the GST Council and notified by the Central Board of Indirect Taxes and Customs (CBIC); the current notifications and rates are published on the official Government of India GST portal. Your income-tax position, including capital gains under Section 45(5A) and TDS under Section 194-IA, sits with the Income-tax Department on the official Income-tax portal, and stamp duty with the Government of Maharashtra under the Maharashtra Stamp Act. The two documents that decide your bill are the Central Goods and Services Tax Act, 2017 — Schedule III entry 5 and Schedule II entry 5(b), which draw the completion-certificate line — and Notification No. 11/2017-Central Tax (Rate) dated 28 June 2017 as amended with effect from 1 April 2019, which carries both the rate entries and, in paragraph 2, the deemed one-third deduction for land. Both are published on the CBIC website and can be read for free. Because rate entries are changed by notification, ask which entry is in force on the date of your invoice rather than relying on any percentage repeated by a broker — but go in knowing the method: two-thirds of the amount charged, times the entry that applies to your flat.