Villa Sold as Plot Plus Construction Agreement: Hosur Ruling on GST and One-Third Land Value

The villa project sits just across the state border from Bengaluru, near Hosur. The buyer signs a memorandum of understanding, then two documents: a sale deed for the plot and a separate construction agreement for the house. The land price in the sale deed is high, the construction price lower. The buyer assumes GST will apply only to the construction agreement. On 8 January 2026, the Tamil Nadu Authority for Advance Ruling looked at exactly this structure for a Hosur developer and said the split does not work that way for GST.

The ruling is Advance Ruling No. 1/ARA/2026 dated 8 January 2026, issued to M/s Jaypee Enterprises of Mathigiri, Hosur, and listed on the GST Council's advance ruling register. Hosur sits close to Bengaluru's southern edge, so this guide reads it for Bengaluru buyers. It is buyer guidance, not tax advice. The ruling itself notes that under Section 103 of the Act it binds only the applicant and the concerned officer.

The short answer. The developer asked whether it could charge GST at 18 per cent with input tax credit only on the construction agreement, leaving the land value in the sale deed untaxed. The authority said no. It ruled that the developer falls under entries 3(i) and 3(ia) of Notification No. 11/2017-Central Tax (Rate), as amended in 2019, and must pay GST at 1.5 per cent for affordable residential apartments and 7.5 per cent for others, with the taxable value worked out by deducting only one-third of the total amount charged for land. On a total price, that works out to an effective 1 or 5 per cent. The trade-off: the split into two documents does not shrink the taxable base to the construction price, but the rate on the whole is lower than 18 per cent.

What was the developer's structure?

Land first, then a house on it. The ruling records that the applicant buys land under a sale deed, develops the layout, obtains approvals from the competent authorities, and enters into an MOU with prospective buyers for purchase of land and construction of a residential house. Two separate agreements are signed with each buyer: one for sale of the plot through a sale deed, and the other for construction of the residential house through a construction agreement. The buyer pays for land and building, and for maintenance of common amenities, according to the MOU's payment schedule.

If you are comparing villa projects, including those on our project pages such as Krishvi E Villa at Attibele, ask whether the land and the house are being sold through one document or two, and how GST is computed on each.

What did the developer ask?

Two questions. First, whether, since the actual value charged for transfer of land is available from the sale deed and the actual value for construction is available from the construction agreement, it could charge GST at 18 per cent under entry 3(xii) with input tax credit only on the construction agreement, instead of 1.5 or 7.5 per cent under entries 3(i) and 3(ia) on the total amount charged. Second, if 1.5 or 7.5 per cent applied, whether the amount charged for land in the sale deed could be deducted instead of the deemed value of one-third of the total amount.

What did the authority rule on the rate?

The lower rates apply, not 18 per cent. The ruling says the applicant is eligible to claim entries 3(i) and 3(ia) of Notification No. 11/2017-Central Tax (Rate), read with the State notification, as amended by Notification No. 03/2019-Central Tax (Rate) dated 29 March 2019, and is liable to pay GST at 1.5 per cent, 0.75 per cent CGST plus 0.75 per cent SGST, for construction of affordable residential apartments, and at 7.5 per cent, 3.75 per cent CGST plus 3.75 per cent SGST, for construction of other than affordable residential apartments. It adds that this is subject to adherence to the conditions in those entries, in the project undertaken by the applicant after 1 April 2019.

How is the land value treated?

By a fixed one-third deduction. On the second question, the ruling says the taxable value of construction services supplied by the applicant is governed by paragraph 2 of Notification No. 11/2017-Central Tax (Rate), as amended by Notification No. 03/2019, and that accordingly the applicant is eligible to avail only the deduction of one-third of the total amount charged for the supply for arriving at the taxable value. In other words, the land price written in the sale deed is not what gets deducted.

Here is the arithmetic for a buyer. Take a villa with a total price of Rs 90 lakh across the sale deed and construction agreement, in the non-affordable category. Deducting one-third leaves Rs 60 lakh as taxable value. At 7.5 per cent, GST is Rs 4.5 lakh, which is 5 per cent of the Rs 90 lakh total. That matches the effective 5 per cent rate described in the Finance Ministry's 2019 FAQ, explained in our guide to GST rates on under-construction homes.

Why did the authority treat two agreements as one supply?

Because of the MOU. The ruling says the applicant first executes an MOU with prospective buyers for both purchase of land and construction of a residential building, which implies that buyers cannot buy only land from the applicant and construct the building on their own or through another builder. With the MOU signed, it becomes mandatory for buyers to engage the applicant for construction as well, and the payment schedule for the total cost of land and building is tabulated in the MOU. The two agreements are then signed on the same day. The authority said this implies that the construction service provided to buyers is a single contract for sale of land and construction of the building.

It then explained the valuation rule. Sale of land is outside GST under Schedule III, but for construction services involving transfer of land or undivided share of land, paragraph 2 of Notification No. 11/2017-Central Tax (Rate) says the value of supply is the total amount charged less the value of land, and the value of land is deemed to be one-third of the total amount. The ruling says this fixes the land value at one-third irrespective of the actual value available or identifiable, and that the deduction of actual land value cannot be claimed. It relied on question 36 of the Finance Ministry's 7 May 2019 FAQ, which says a developer cannot deduct the actual land value instead of the deemed value because paragraph 2 clearly prescribes a one-third abatement towards value of land.

For a buyer, the practical point is that the MOU matters. If your purchase ties the plot and the house together in one commitment, expect the developer to treat the whole price as one supply for GST purposes, on this ruling's reasoning.

Why does this matter to a Bengaluru buyer?

Because a two-document structure like this one may be offered for villas and plotted homes around the city too. The Hosur ruling shows one authority treating the land-plus-house package as construction of residential units taxed at the concessional rates on the total amount, with only the deemed one-third land deduction. That is different from the treatment of a plain sale of developed land, which a Finance Ministry circular says is sale of land outside GST, covered in our guide to GST on developed plots near Bengaluru.

The ruling applies to the applicant on its facts. Its first paragraphs set out Section 103: an advance ruling binds only the applicant who sought it and the concerned or jurisdictional officer, and remains binding unless the law, facts or circumstances change. For your own villa purchase, ask the developer which entry it charges GST under, what the taxable value is, and whether the land value is being deducted as a fixed one-third or otherwise.

A seven-point checklist for villa and plot-plus-house purchases

1. Ask whether land and construction are sold through one document or two.
2. Get the total price across the sale deed and construction agreement.
3. Ask which notification entry the developer uses for GST.
4. Ask whether the land deduction is a fixed one-third or another figure.
5. Check whether your unit falls in the affordable or other residential category.
6. Work out GST on the total price, not only on the construction agreement.
7. Keep the MOU, sale deed and construction agreement together with all invoices.

Frequently asked questions

Is GST charged on the land part of a villa sold with a construction agreement?

In Advance Ruling No. 1/ARA/2026, the Tamil Nadu authority held that a Hosur developer selling land and house through a sale deed and construction agreement must pay GST under entries 3(i) and 3(ia), with only a one-third deduction from the total amount charged for land, rather than deducting the sale deed value.

What GST rate did the Hosur ruling apply?

The ruling applied 1.5 per cent, 0.75 per cent CGST plus 0.75 per cent SGST, for affordable residential apartments, and 7.5 per cent, 3.75 per cent CGST plus 3.75 per cent SGST, for others, subject to the conditions in Notification No. 11/2017 as amended by Notification No. 03/2019.

Could the developer charge 18 per cent only on construction?

No. The developer proposed GST at 18 per cent with input tax credit only on the construction agreement under entry 3(xii). The Tamil Nadu authority instead held it eligible under entries 3(i) and 3(ia), with the taxable value computed after deducting one-third of the total amount charged.

Does this ruling bind developers in Karnataka?

The ruling quotes Section 103: an advance ruling binds only the applicant who sought it and the concerned or jurisdictional officer. It shows how one authority read the notification, but for your own purchase ask the developer which entry and land deduction it applies.

Last updated 2026-11-05. PropNewz Team.