Under-Construction vs Ready-to-Move in 2026: The GST, Tax and Cash-Flow Math

The choice between an under-construction home and a ready one is usually framed as price versus risk. It is also a tax decision. GST applies to one and not the other, the timing of interest and TDS differs, and the real comparison only appears once all of that is in one table. This guide sets out the rules as published and then works an example.

GST: the rule since 1 April 2019

• Under-construction residential apartments (non-affordable): effective 5% GST, without input tax credit. The GST Council cut the rate from 12% with credit, effective 1 April 2019 (BloombergQuint; The Quint).
• Affordable housing: effective 1% GST. Affordable means carpet area up to 60 sq m in the metros (including Bengaluru, Chennai and Delhi-NCR) or 90 sq m elsewhere, and value up to ₹45 lakh (The Quint; Motilal Oswal).
• Ready-to-move: no GST where the sale happens after the completion certificate is issued or after first occupation, whichever is earlier. At that point it is a sale of immovable property, not a service.
• Resale homes: no GST, being a transfer between owners of a completed property.

How the 5% is actually computed

The notified rate is not 5%. Notification No. 03/2019-Central Tax (Rate), dated 29 March 2019, sets central tax at 3.75% for non-affordable residential apartments in projects commencing on or after 1 April 2019, with an equal state tax, so 7.5% in total. Because the land component is not a supply of service, the GST rules deem one-third of the total amount charged to be the value of land and tax only the remaining two-thirds. 7.5% on two-thirds is 5% of the total agreement value. Some explainers apply 5% to two-thirds of the price, which understates the tax; the effective rate is 5% of the whole.

For affordable homes, the same mechanics give 1% (0.75% central tax plus 0.75% state tax on two-thirds). The central tax on affordable homes must be paid in cash.

Why does this matter in practice? Because the GST line on a demand letter should equal 5% of the amount demanded, not 3.33% and not 7.5%. If the figures on your demands do not reconcile to 5% of the instalment, ask the developer for the computation before you pay. Also check whether the quoted price was GST-inclusive: two projects quoting the same headline price can differ by 5% depending on that one phrase in the cost sheet.

Why 'without ITC' matters to you

Under the 2019 scheme developers cannot set off GST paid on cement, steel and services against the GST they charge you. That tax is embedded in their cost and therefore in the price. The GST 2.0 rate changes of late 2025 cut rates on some construction inputs, including cement from 28% to 18% (Motilal Oswal), which reduces that embedded cost. Whether any saving reaches the buyer depends on the developer and the market, so ask for it to be reflected in your price rather than assuming it.

Other GST lines on the bill

• Parking, club and other charges billed with an under-construction home generally follow the home's rate as part of the composite supply (Motilal Oswal).
• Maintenance after possession: Motilal Oswal notes GST at 18% on society maintenance where contributions exceed ₹7,500 a month per member.
• Stamp duty and registration are state levies, not GST, and apply to both under-construction and ready homes.

Worked example: ₹2.4 crore under construction vs ₹2.5 crore ready

Hypothetical figures, Bengaluru. An under-construction 3-bedroom at ₹2.40 crore all-in, possession in three years, against a comparable ready home at ₹2.50 crore with an occupancy certificate. The buyer currently rents.

• GST: under construction, 5% of ₹2.40 crore = ₹12.0 lakh. Ready, nil. Effective price: ₹2.52 crore vs ₹2.50 crore. The ₹10 lakh headline discount has become a ₹2 lakh premium.
• Stamp duty and registration (about 7.6% in Karnataka): roughly ₹18.2 lakh vs ₹19.0 lakh, payable at registration in each case.
• Rent while you wait: if you pay ₹60,000 a month for three years (an illustrative figure), that is ₹21.6 lakh the ready home avoids.
• Interest during construction: with a construction-linked loan, you pay interest on each disbursement (pre-EMI) while also paying rent.
• On these numbers the ready home wins clearly. For the under-construction option to make sense, the price gap needs to be large enough to absorb GST, rent and risk, or the buyer must value something only the new project offers.

Income tax differences

• Interest on a self-occupied home: under section 22 of the Income-tax Act, 2025, the interest deduction for a self-occupied home is capped at ₹2 lakh a year, and the condition includes completing acquisition or construction within five years from the end of the tax year in which the loan was taken (TaxHeal; incometaxindia.gov.in). A long-delayed project can therefore cost you deductions.
• Regime: home loan interest on a self-occupied home is not deductible under the default new tax regime (IIFL Home Loans; Business Standard). For many salaried buyers, this narrows the tax difference between the two choices.
• Let-out property: interest is deductible against rent under either regime, though under the new regime a resulting loss cannot be set off against salary.
• TDS: as buyer, you deduct 1% TDS on every instalment of an under-construction home worth ₹50 lakh or more, not just at the end.
• Capital gains clock: the holding period for a long-term gain on property is more than 24 months. When it starts for an under-construction home is a question to settle with your CA at purchase, not at sale.

When under-construction still makes sense

• The project offers something genuinely unavailable in ready stock: a location, a format, or a developer you trust.
• The price gap, after GST, comfortably exceeds the rent and interest you will carry.
• The project's RERA page shows registration validity well beyond the promised date, regular quarterly updates and visible progress.
• You do not need to move in, and can absorb delay without financial strain. Remember that section 18 of the RERA Act entitles you to interest for each month of delay, but enforcing it takes time.

Cash flow side by side

• Ready-to-move: down payment, stamp duty and registration all at once; EMI starts on full disbursement; rent stops when you move in.
• Under-construction: booking amount (capped at 10% before a registered agreement under RERA section 13), then construction-linked instalments, each carrying 5% GST and 1% TDS; pre-EMI interest on each loan tranche; rent continues until possession.
• Under-construction stamp duty is generally payable when the agreement or sale deed is registered, under each state's rules, so check the timing for your state.
• At possession: maintenance deposits, corpus fund and utility connection charges arrive together.

Questions to ask the developer before booking

• Is the quoted price inclusive of GST, or is GST added to each demand?
• Which charges (parking, club, power backup, utility connections) are billed with GST and which are not?
• What is the RERA-declared completion date, and how does it compare with the possession date in the agreement?
• Has the developer passed on any reduction in input costs from the late-2025 GST rate changes on materials?
• If a completion or occupancy certificate is close, will any remaining demand fall after it is issued, and how will GST be treated on that demand?

Not tax or legal advice

GST and income tax rules are complex and fact-specific. This article is general information as of the date shown, with an illustrative example. Confirm the treatment of your purchase with a chartered accountant.