The GST Council, in its 56th meeting, took some bold measures to usher in next-generation indirect tax reforms in the country. As expected, the all-powerful council approved most proposals, including a two-slab structure, referred to it by the Group of Ministers on rate rationalisation last month. One of the key features of GST rate rationalisation has been scrapping the 12% and 28% rates and moving over 90% items from these two slabs to either 5% or 18% by scrapping the 12% and 28% slabs. The real estate sector is also a beneficiary in this GST rejig, as the rate on one of the key input materials, cement, has been brought down to 18% from 28% earlier.
The real estate industry has welcomed the move to a lower tax rate on cement, stating that this will bring down the overall project cost for builders who can later pass on the benefit to homebuyers.
Anupama Reddy, Vice President & Co-Group Head, ICRA Ltd, believes that rural housing will be a key beneficiary from the decision. With cement accounting for nearly 10-12% of total construction costs in rural housing, this tax cut translates into a 0.8%–1.0% reduction in overall construction expenses, Reddy added.
Industry experts echoed similar views, saying the move is aimed at offering some relief to low-income families and supporting the broader ‘Housing for All’ mission.
GST cut may result in a price benefit of Rs 26-28/bag
It is expected that the GST cut may result in a price benefit of Rs 26-28/bag to the retail customers, without materially affecting the profitability of cement manufacturers.
“The timing of this move is also strategic, aligning with the seasonal surge (post monsoon period) in the construction activity across rural and semi-urban regions,” according to ICRA.
GST cut is more than a financial relief for homebuyers
Sunil Goel, Managing Director, Numax Realcon and Co-Founder of Omaxe Limited says that the GST cut on cement is “more than a financial relief” and rather it’s a trust-building measure.
Buyers often wonder if policy reforms actually reach them, Goel added. “By lowering one of the heaviest-taxed inputs, the government has ensured tangible benefits flow into pricing, particularly for under-construction projects. If developers pass this on transparently, it strengthens credibility and long-term buyer confidence.”
According to Ashwani Kumar, Pyramid Infratech, reducing GST on key construction materials is likely to highly benefit the real estate and infrastructure sector. “Lowering down the GST rate of 28% to 18% on cement will make a substantial difference in the project cost for the developer community hence enabling them to pass on the benefits to homebuyers.”
Interesting, the government has made the GST cut announcement ahead of the festive season, which will lead to positive sentiments in the market as it’s a strategic reform that will enhance homebuyers’ affordability while empowering developers to deliver projects more sustainably and profitably, Kumar added.
Will real estate developers get the input tax credit (ITC) benefit?
Samantak Das, Chief Economist and Head of Research & REIS, India, JLL, In India, says developers do not get the full benefit of Input Tax Credit (ITC) in real estate and hence the high GST rate on cement, currently at 28%, adds to the final apartment cost.
“The government’s decision to bring down the GST rate to 18% is a welcome move. The impact of this reduction in rate will vary across different segments of the real estate market. Residential being a strong driver of Indian real estate, understanding of the impact on home price is important. From our ground-level data pertaining to live projects, we believe the reduction of home price may range between 1-1.5%, considering various types of residential projects and effective cement cost reduction considering the cascading and base price adjustments. This is with the assumption that developers would transmit the entire benefit to the customer.”
Prima facie, it may appear that there may not be a drastic slash in home prices. However, for affordable and mid-segment housing, we are likely to see improvements in demand; for premium and luxury properties, the impact on buyers’ affordability would be marginal but the developers can reinvest the savings in the cost of construction to improve quality and amenities, say real estate experts.
Impact on affordability and sentiments of homebuyers
From a macro perspective, there would be a positive impact on affordability and the sentiments of homebuyers. Developers would gain in terms of easing working capital pressure. The overall savings in cost outflow will be significant and beneficial to all stakeholders of the real estate and construction industry, directly or indirectly.
Welcoming the GST Council’s decision, Vimal Nadar, Senior Director & Head of Research, Colliers India, says the newly announced two-slab GST structure of 5% and 18% is a progressive move to rationalize the prevailing inverted duty structure, improvise classification, simplify approvals & processing refunds. “These measures will surely cut costs at different tiers while enhancing the ease of doing business and driving consumption.”
Within real estate, the slashing of GST on cement will play a critical role in rehauling project cost structures as cement forms a major value component in the overall cost of construction, feels Nadar.
Expressing similar views, Piyush Bothra, Co-Founder and CFO, Square Yards, says that the latest GST restructuring comes as a major boost for the real estate sector. With the reduction in costs of key construction materials such as cement and steel, input expenses for developers are expected to ease, making projects more viable, he added.
Shrinivas Rao, FRICS, CEO, Vestian, says that the recent reduction in GST rates is poised to strengthen the real estate sector by reshaping demand–supply dynamics. Lower GST on construction materials is expected to enhance housing affordability by reducing input costs, while reduced GST on other goods could improve disposable income, thereby stimulating real estate demand, Rao noted.
Vikas Bhasin, Managing Director, Saya Group hailed the move saying the government’s decision on broad GST rate rationalisation will benefit the public at large.
He, however, said that it is important to note that construction materials account for only about 25–30% of the overall cost of real estate projects, and cement is just one of the many inputs. Therefore, the impact of this move on end prices will be limited, he added.
He further said that a more meaningful reform would have been a reduction in GST on under-construction properties, as that would have directly and significantly benefited homebuyers.