Short answer: the rate follows the project, not the unit. A project where commercial space is 15% or less of total carpet area is an RREP, and everything in it — including the shops — is taxed at the residential rates with no input tax credit. Above 15%, it is a REP, and the commercial part moves to the with-credit item. The affordable rate needs two tests met, and the ₹45 lakh one is not the base price.
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RREP or REP: the classification that sets your GST rate
CA K Sanjay Bhargav, Chartered Accountant, Bengaluru
Membership No. 250054 · DISA (ICAI)
Published
One line decides it
Clause (xix) of paragraph 4:
a Residential Real Estate Project (RREP) means a REP in which the carpet area of the commercial apartments is not more than 15 per cent of the total carpet area of all the apartments in the REP
Carpet area. Not value, not unit count, not floor plates. Measured across all apartments in the project.
That single percentage sets the tax treatment of every unit in the scheme.
What that does to a shop
This is the part that catches people, because the unit does not change — the project around it does.
| The same commercial unit | In an RREP | In a REP |
|---|---|---|
| Rate item | (ib) | (if) |
| Central tax | 3.75% | with credit |
| Effective, after the land deduction | 5% | 12% — see the credit reversal post |
| Input tax credit | None | Available |
A project that is 14% commercial and one that is 16% commercial tax the identical shop on entirely different bases. At 14% you charge less and recover no credit; at 16% you charge more and keep the credit chain. Which is better depends on your input cost profile, and it is a question worth asking before the unit mix is frozen — because after the plan is sanctioned the answer is whatever the plan made it.
The residential rates
For everything else in the scheme:
| Central tax | Effective | Credit | |
|---|---|---|---|
| Affordable residential — items (i) and (ic) | 0.75% | 1% | None |
| Other residential — items (ia) and (id) | 3.75% | 5% | None |
The same rates apply whether the project is an RREP or a REP — for residential units the classification does not change the rate. It only changes the shops.
Two conditions ride on every one of these entries. Credit is barred except as apportioned under the Annexures. And the tax must be paid in cash — the notification requires the central tax at the specified rate to be paid "by debiting the electronic cash ledger only". Cash out on every invoice, with no credit to set against it, is a working capital fact that belongs in the project cash flow rather than in a tax note. The related 80% procurement condition tightens it further.
"Affordable" is two tests, and one of them is misread constantly
Both must be satisfied:
| Carpet area | not exceeding 60 sq m in a metropolitan city, 90 sq m elsewhere |
| Gross amount charged | not more than ₹45 lakh |
The notification names the metropolitan cities exhaustively: Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon and Faridabad), Hyderabad, Kolkata, and Mumbai (whole of MMR). Bengaluru is on the list, so 60 square metres is the local limit — not 90.
And ₹45 lakh is not the base price. The notification defines gross amount as the sum of:
- the consideration for the construction service
- the amount charged for the land or undivided share of land, including by lease or sub-lease
- any other amount charged by the promoter from the buyer — the notification spells out preferential location charges, development charges, parking charges, common facility charges
So a flat advertised at ₹43 lakh, plus a parking charge and a preferential location charge, is over ₹45 lakh and is not an affordable residential apartment. The rate goes from 1% to 5% on that unit, and nothing about the flat itself changed. This is worth modelling per unit at the pricing stage, not discovering at invoicing.
Projects that predate the scheme
A project running on 1 April 2019 could opt to stay on the older rates with credit. Whether it qualified as an ongoing project had conditions of its own: a commencement certificate issued on or before 31 March 2019, together with certification by a registered architect, a chartered engineer registered with the Institution of Engineers (India), or a licensed surveyor that construction had actually started by then — or the same certification where no commencement certificate was needed. And the project must not have received its completion certificate or first occupation by that date.
Where the option was not exercised in the prescribed form, the new rates apply by default. That default is why so many projects sit in the no-credit scheme without anyone having chosen it.
What sits downstream of this decision
Almost everything else:
- The 80:20 procurement condition and the 18% reverse charge on the shortfall
- The tax on development rights and FSI, which is computed by reference to the unbooked units
- The credit reversal at the completion certificate, which is nothing at all in the 1%/5% scheme and real money outside it
- When GST falls due on advances
- On a joint development, the landowner's share and credit
Get the classification wrong and every one of those is computed on the wrong footing. The wider picture is in JDA taxation, scenario by scenario.
This is a working reference on the classification and the rate entries, not advice on a particular project. The definitions and rates above are taken from the text of Notification No. 3/2019-Central Tax (Rate) dated 29 March 2019, which substituted the entries against serial number 3 of Notification 11/2017-Central Tax (Rate) and inserted the definitions at paragraph 4. Rates and thresholds are amended from time to time; for a live project, read the current consolidated entry rather than relying on this page.
Frequently asked questions
What makes a project an RREP rather than a REP?
One test. Clause (xix) of paragraph 4 of Notification 11/2017-CT(R), as inserted by Notification 3/2019, defines a Residential Real Estate Project as a REP in which the carpet area of the commercial apartments is not more than 15% of the total carpet area of all the apartments in the REP. Above 15% commercial, the project is a REP and not an RREP. It is measured on carpet area, not on value, unit count or floor plates.
Why does the same shop attract a different rate in different projects?
Because the rate follows the project's classification, not the unit's character. A commercial apartment in an RREP falls under item (ib) at 3.75% central tax — 5% effective after the land deduction — with no input tax credit. A commercial apartment in a REP other than an RREP falls under item (if) instead, which carries credit. So an identical shop is taxed one way in a project that is 14% commercial and another way in a project that is 16% commercial.
What counts as an affordable residential apartment?
Two tests, and both must be met. The carpet area must not exceed 60 square metres in a metropolitan city or 90 square metres elsewhere, and the gross amount charged must not be more than ₹45 lakh. The notification names the metropolitan cities: Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon and Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR). Bengaluru is on that list, so the 60 square metre limit is the one that applies locally.
Is the ₹45 lakh limit the base price of the flat?
No, and this is where projects lose the 1% rate without meaning to. The notification defines gross amount as the sum of three things: the consideration for the construction service, the amount charged for transfer of land or the undivided share of land, and any other amount charged by the promoter from the buyer — expressly including preferential location charges, development charges, parking charges and common facility charges. A flat quoted at ₹43 lakh can cross the line once parking and a preferential location charge are added.
Can I pay the 1% or 5% using input tax credit in the ledger?
No. The rate entries carry a proviso that the central tax at the specified rate shall be paid in cash — that is, by debiting the electronic cash ledger only. Combined with the bar on taking credit, the scheme is cash-out on every invoice. That is a working capital fact rather than a tax one, and it belongs in the project cash flow before the first booking.
What about a project that was already running on 1 April 2019?
An ongoing project could opt to continue at the older rates with credit. Whether a project qualified as ongoing had its own conditions — a commencement certificate issued on or before 31 March 2019 with an architect, chartered engineer or licensed surveyor certifying that construction had started by then, or the equivalent certification where no commencement certificate was required, and no completion certificate issued or first occupation before that date. The option had to be exercised in the prescribed form; where it was not, the new rates apply by default.
Not sure which bucket your project is in?
Send the unit mix, the carpet areas and what you are charging per flat, inclusive of parking and preferential location. Whether the project is an RREP, whether any unit qualifies as affordable, and what that does to your credit position are settled before the first invoice — because the classification is fixed by the project, not chosen per unit.
Related service: Real Estate & Developer Tax