GST Ruling on Residential Construction & Land Deduction
Case Name: In the matter of M/s. Jaypee Enterprises
Authority: Authority for Advance Ruling (AAR), Tamil Nadu
Order Date: January 8, 2026
Executive Summary
The Tamil Nadu AAR has clarified the taxability of residential projects where a promoter sells land and provides construction services. The ruling establishes that even if a developer has a separate sale deed for the land, they must follow the statutory one-third (1/3^{rd}) land value deduction for GST purposes rather than deducting the actual land value.
Key Ruling Highlights
1. Tax Rates for Residential Projects
The AAR confirmed that for projects commencing after April 1, 2019, promoters are liable to pay GST at the following concessional rates (without Input Tax Credit):
• Affordable Residential Apartments: 1.5% GST (0.75% CGST + 0.75% SGST).
• Other than Affordable Residential Apartments: 7.5% GST (3.75% CGST + 3.75% SGST).
2. Mandatory Valuation Mechanism
The applicant argued that since the actual value of land was clearly identifiable in the sale deed, that specific amount should be excluded from the taxable value. The AAR rejected this, ruling that:
• The value of supply is governed by Para 2 of Notification No. 11/2017-CT(Rate).
• The deduction for land is strictly deemed to be one-third (1/3^{rd}) of the total amount charged for the project.
• Promoters cannot adopt the actual land value, even if it is identifiable or reflected in a separate registered sale deed.
3. Composite Nature of Supply
The AAR observed that when a buyer signs an MOU for both land and construction, it becomes a “single contract” for a residential house. Even if two separate agreements (Sale Deed and Construction Agreement) are signed on the same day, the activity remains a taxable “Construction Service” under Schedule II of the CGST Act.
Strategic Implications
• Valuation Consistency: This ruling reinforces that the GST department prioritizes the statutory “deemed value” over actual contractual values for land to prevent potential under-valuation.
• Compliance: Developers must ensure their tax calculations on “Total Amount Charged” (sum of land and construction considerations) include the mandatory 1/3^{rd} abatement only.
• Binding Nature: Note that while this ruling is specific to the applicant, it follows the CBIC’s FAQs and established GST notifications, signaling the department’s broader stance on real estate valuation.