The Maharashtra Authority for Advance Ruling (AAR) has said that when a new builder takes over an under-construction housing project, they must follow the same GST rate that the previous builder (old promoter) had chosen.
Hearing an application by Godrej Residency Private Limited (GRPL), the Maharashtra AAR has said that Godrej Residency must continue levying Goods and Services Tax (GST) at an effective rate of 12% on all sales—including new and existing buyers—in a residential project it acquired from Neelkamal Realtors Towers Pvt Ltd.
The ruling clarifies that GST rates for real estate projects are tied to the project itself, not the promoter, preventing Godrej Residency from switching to a lower 5% rate for new customers.
The dispute arose after Godrej Residency acquired the stalled “One Mahalaxmi” project in Mumbai’s Vikhroli area through a December 2022 conveyance deed. The original promoter, Neelkamal Realtors, had opted in 2019 to pay GST at 18% (12% effective rate after one-third land value abatement) with input tax credit (ITC). GRPL sought to bifurcate rates—12% for existing buyers and 5% (without ITC) for new buyers—arguing the one-time GST option was promoter-specific.
However, the Maharashtra AAR emphasised that the 2019 notification’s one-time option is irrevocable and project-centric. Citing CBIC guidelines and a Kerala AAR precedent, it ruled that ongoing projects retain their GST classification even if promoters change. The authority noted the project met all “ongoing” criteria – commencement before 31st March 2019, partial bookings by that date, and no completion certificate.
The decision bars GRPL from adopting dual rates, ensuring ITC continuity for all buyers. It also highlights that unutilised ITC from Neelkamal Realtors remains non-transferable, requiring GRPL to manage compliance under the existing framework
Prior to 1st April 2019, builders were allowed to charge 12% GST on under-construction flats with the benefit of input tax credit (ITC). However, a new GST provision introduced on 1 April 2019, offered a lower 5% GST rate for residential flats but without ITC. For ongoing projects, builders were given a one-time option to either continue with the 12% rate with ITC or switch to the 5% rate without ITC. In this case, the previous builder had opted for the 12% GST rate with ITC.
An tax expert says the AAR ruling on one hand helps in keeping the taxation consistent but at the same time, this reduces the flexibility for the new builder. “Hence, anyone taking over an under-construction project needs to factor in this ambiguity, which should be clarified for the benefit of the industry,” he says.
