Tax for property developers in India

Real-estate development is a business taxed on actual profit under the mandatory percentage-of-completion method (ICDS-III), not on a presumptive basis. Under-construction residential sales carry GST at 1% (affordable) or 5% (other) with no input credit, so GST on cement and steel is a sunk cost; post-completion sales are outside GST. Buyers deduct 1% TDS under Section 194-IA on sales of Rs 50 lakh or more, and selling below stamp-duty value can trigger the Section 43CA override. Unsold finished flats get a two-year nil-annual-value window under Section 23(5) before notional rent applies, and a landowner's JDA gain is taxed at completion under Section 45(5A).

Presumptive + GST + TDS at a glance

Presumptive taxation

Section:: Sec Not typically (books + POCM)
Deemed profit rate:: N/A (actual profit under ICDS-III)
Classification:: business

GST treatment

Slab:: 5%
SAC:: 9954 construction; affordable residential 1%, other residential 5% (both no ITC), commercial standalone 12% with ITC, works contract 18%
Composition eligible:: No
Reverse charge (RCM):: Applicable

TDS exposure

Last reviewed: 29 May 2026

Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →

Real-estate development is a business, but it runs on its own tax machinery rather than the simple presumptive route. Four features define it. Sales of under-construction property carry GST at 1% (affordable) or 5% (other residential) with no input-tax credit, so the GST you pay on cement and steel is a sunk cost. Profit must be recognised under the percentage-of-completion method (ICDS-III), not on completion. A landowner in a joint development agreement is taxed on capital gains at the completion-certificate stage under Section 45(5A). And unsold finished flats enjoy a nil annual value for two years from the completion certificate before notional rent applies under Section 23(5).

What business structure do property developers use?

The common patterns for property developers are: Private limited company, the usual structure for a developer (liability, funding, RERA), LLP, for a smaller development partnership, Sole proprietor or partnership, only for the smallest builders. The right structure depends on revenue, liability exposure, and personal circumstances, covered below.

GST on under-construction sales: 1% or 5%, no input credit

Under-construction residential property is taxed at 1% for affordable housing (broadly up to 60 sqm metro or 90 sqm non-metro and up to Rs 45 lakh) and 5% for other residential, in both cases with no input-tax credit. Commercial standalone is 12% with credit. Crucially, with no ITC on the 1%/5% residential schemes, the GST you pay on cement, steel and works contracts is a cost baked into the flat price, not recoverable. At least 80% of procurement must be from registered suppliers, or you pay reverse charge on the shortfall (and cement from an unregistered supplier attracts 28% RCM). Property sold after the completion certificate is outside GST entirely.

Under-construction residential GST is 1% (affordable) or 5% (other) with no input credit; post-completion sales are outside GST; 80% of inputs must be from registered suppliers. (CGST Act 2017 + real-estate rate notifications (1%/5% no-ITC, 80% registered-procurement condition))

Percentage-of-completion accounting and buyer TDS

A developer cannot defer all profit to completion: ICDS-III makes the percentage-of-completion method mandatory, so profit is recognised stage by stage on a cost-to-cost or survey basis. On each sale of Rs 50 lakh or more, the buyer deducts 1% TDS under Section 194-IA. And if a unit is sold below the stamp-duty value, Section 43CA can deem the stamp-duty value (with a standing 10% safe-harbour tolerance) as the sale price for tax. Sub-contractors you engage attract 194C TDS at 1 or 2% and GST on works contracts at 18%.

Profit is recognised under the mandatory percentage-of-completion method (ICDS-III); buyers deduct 1% TDS under 194-IA on sales of Rs 50 lakh or more; selling below stamp-duty value can trigger the 43CA override. (ICDS-III (percentage of completion); Income-tax Act 1961 s.194-IA (TDS consolidated into the Income-tax Act 2025 s.393) + s.43CA (stamp-duty-value override))

Unsold stock (Section 23(5)) and joint development (Section 45(5A))

Finished flats held as stock-in-trade have a nil annual value for two years from the end of the financial year in which the completion certificate is obtained, so there is no notional-rent tax in that window. After two years, the unsold stock is treated as deemed let-out and taxed on notional rent. Separately, where a landowner (individual or HUF) enters a joint development agreement, the capital-gains charge under Section 45(5A) is deferred to the year the completion certificate is issued, not the year the agreement is signed, a major timing relief that prevents tax on a gain before the project delivers.

Unsold finished flats have nil annual value for two years from completion (then notional rent); a landowner's JDA capital gain is taxed at the completion-certificate year under Section 45(5A). (Income-tax Act 1961 s.23(5) (unsold stock; Income-tax Act 2025 s.21) + s.45(5A) (JDA timing; Income-tax Act 2025 s.67))

Allowable expenses

Category	Examples	Tax treatment
Land cost	Land purchase, stamp duty, registration	Capitalised to project cost (no GST on land); recognised via POCM
Construction	Cement, steel, works contracts, labour	Project cost; GST on these is non-creditable in 1%/5% residential schemes
Statutory and approvals	RERA registration, plan approvals, BOCW cess (~1%)	Capitalised to project cost
Financing	Project loan interest	Capitalised to project under ICDS / borrowing-cost rules
Selling and admin	Brokerage, marketing, office, accountant	Deductible period or project cost as applicable

Vehicle and travel costs

Site and project vehicles are a business cost recognised through project accounting; keep them separate from any personal vehicle use.

Capital allowances and equipment

A developer accounts for actual costs through project accounting rather than presumptive deemed profit. Office equipment and site plant depreciate under normal rates; the factory-style ITC ring-fencing does not arise as residential schemes carry no ITC.

Worked example

Meridian Developers — Pune, MH

residential project developer (private limited) (2026-27)

Completes a residential project in 2026 and obtains the completion certificate. Some flats remain unsold. During construction it sold under-construction units at 5% GST with no input credit.

Profit was recognised stage by stage under ICDS-III through construction, not deferred to completion. On each under-construction sale of Rs 50 lakh or more, buyers deducted 1% under Section 194-IA, which the company reclaimed against its tax. The GST it paid on cement, steel and works contracts was not creditable (5% no-ITC scheme), so it was built into pricing. The unsold flats now have a nil annual value for two years from the completion-certificate year under Section 23(5); only after that does notional rent on the unsold stock become taxable.

Common audit triggers for property developers

Using completed-contract instead of the mandatory percentage-of-completion method
Selling units below stamp-duty value without accounting for the 43CA override
Claiming input credit on a 1% or 5% residential project (not available)
Procurement below 80% from registered suppliers without paying reverse charge on the shortfall
Missing the JDA capital-gains charge in the completion-certificate year (Section 45(5A))
Not recognising notional rent on unsold stock after the two-year Section 23(5) window

Frequently asked questions

What GST applies to under-construction property?+

1% for affordable housing (broadly up to 60 sqm metro or 90 sqm non-metro and up to Rs 45 lakh) and 5% for other residential, both with no input-tax credit. Commercial standalone is 12% with credit. Because the residential schemes carry no ITC, the GST you pay on cement, steel and works contracts is a cost in the flat price, not recoverable. Property sold after the completion certificate is outside GST.

When is a developer's profit taxed?+

Stage by stage, under the mandatory percentage-of-completion method (ICDS-III). A developer cannot use the completed-contract method to defer all profit to handover, profit is recognised as the project progresses on a cost-to-cost or survey basis. This is a key difference from a simple trading business and rules out presumptive taxation for most developers.

How are unsold flats taxed?+

Finished flats held as stock have a nil annual value for two years from the end of the year in which the completion certificate is obtained, so no notional-rent tax in that window (Section 23(5)). After two years, the unsold stock is treated as deemed let-out and taxed on notional rent, even though it is unsold. Planning sales within the two-year window matters.

How is a joint development agreement taxed for the landowner?+

Under Section 45(5A), an individual or HUF landowner's capital gain on a JDA is taxed in the year the completion certificate is issued, not the year the agreement is signed. This defers the tax until the project actually delivers, preventing a charge on a gain before the landowner receives the developed units or consideration.

Last reviewed: 29 May 2026