The Indian government is preparing to launch a revamped GST regime with just two major tax slabs—5% and 18% potentially replacing the current structure of 5%, 12%, 18% and 28%. This GST reform, expected to be introduced by Diwali 2025 is being hailed as a significant step toward simplifying India’s indirect tax structure. But what does it really mean for the real estate market? More importantly will this GST restructuring lead to more affordable homes?
Let’s dive deeper into what this change could mean for homebuyers, real estate developers and the larger housing sector.
GST on Real Estate: Understanding the Proposed GST Slabs and Their Impact on Real Estate
In the existing GST framework:
- Affordable housing attracts 1% GST (no input tax credit)
- Other under-construction residential properties attract 5% GST
- Ready-to-move-in properties (with occupancy certificate) attract no GST
- Construction materials such as:
- Cement – 28%
- Steel – 18%
- Paints, tiles, sanitaryware – 18% to 28%
- Services (like architectural design, legal and project management) – 18%
Because of the disparity between the GST on input materials and the GST charged on the sale of homes, developers cannot claim input tax credit, leading to higher project costs. These costs are often passed on to homebuyers, impacting overall housing affordability.
Proposed GST Reform: What’s Changing?
Under the proposed two-slab GST structure:
- Most goods and services will be taxed at either 5% or 18%
- A separate slab of 40% will apply only to luxury and ‘sin’ goods
This could mean:
- A reduction in GST on key inputs like cement and paints from 28% to 18%
- Standardisation of input costs, making pricing more predictable
- Lower compliance burden for developers due to a simplified tax code
Will Developers Pass on the Benefit?
This is the million-dollar question. If input costs come down due to lower GST, project development becomes cheaper. However, as Abhishek Kumar of SahajMoney warns, “There’s no legal compulsion for developers to reduce property prices. In a high-demand market, many may retain the margin gains.”
Several factors influence whether the benefit reaches homebuyers:
- Stage of the project: Early-stage developments may reflect cost reductions more than completed or nearing-completion projects.
- Market demand: In high-demand areas, developers may not feel pressured to cut prices.
- Developer’s financial health: Strained developers may use savings to stabilise cash flow rather than cut prices.
Takeaway: While GST reform may lower input costs, a price drop for buyers is not guaranteed unless transparency improves.
Insights from an Expert and a Developer
Real estate developers appear optimistic about the proposed changes.
“A reduction in GST on under-construction homes would provide much-needed relief, making housing more affordable and boosting sentiment in the real estate sector,” says Vikas Bhasin, MD of Saya Group.
Potential Impacts by Housing Category
Affordable Housing:
- If the 1% GST rate continues, the reduction in input taxes could improve margins for developers
- May allow developers to offer incentives or improve quality
- Increased supply could improve housing affordability in urban areas
Mid-segment Homes:
- If input tax credit is reinstated or input costs are reduced, this segment may benefit the most
- Developers may pass on the benefits through discounts or flexible plans.
Luxury Housing:
- Likely to face higher costs if imported fittings or finishes fall under the new 40% sin/luxury rate
- Homes in the ₹2 crore+ category may see price pressures
Boost to Formalisation and Transparency
Beyond cost, the GST revamp could lead to:
- Increased transparency in project costing
- Enhanced use of official banking channels and compliant billing practices.
- Reduced scope for cash transactions in property sales
- Improved homebuyer trust in under-construction projects
According to B. Srinivasan of Shree Sidvin Investment Advisors:
“A 10% to 20% cut in indirect taxes can stimulate the sector, push transactions into the formal economy and generate stronger compliance across the board.”
This is especially relevant for tier-2 and tier-3 cities, where the cash component in deals is still prevalent. A rational GST regime can shift market behaviour toward clean transactions.
Key Takeaways for Homebuyers
| Potential Advantage | Impact |
| Lower GST on construction materials | Reduced construction cost |
| Simplified tax structure | Easier understanding of pricing |
| Lower compliance burden for builders | Faster project execution |
| Push toward formalisation | Safer property investments |
| Incentives for affordable housing | Greater supply of budget homes |
What Should Homebuyers Do Now?
If you’re planning to buy a house in the near future, especially an under-construction property. Here’s what you should keep in mind:
- Wait for the final GST notification before making a purchase decision.
- Compare prices pre and post reform, especially in new launches.
- Choose RERA-registered projects with transparent cost breakdowns.
- Look for developer announcements, some may start offering GST discounts ahead of Diwali.
- Ensure all payments are through formal channels and GST is charged transparently.
Final Word: A Promising Reform with Conditions Attached
The proposed two-slab GST regime (5% and 18%) has the potential to reshape the Indian real estate landscape. By reducing construction costs, simplifying GST compliance and promoting affordability, it could benefit millions of prospective homebuyers.
However, whether these gains are passed on to buyers will depend on developer behaviour, market competitiveness and policy enforcement.
As Diwali 2025 approaches, all eyes will be on the government’s final announcement and how it aligns with PM Modi’s vision for next-gen GST reforms.
Sources: Hindustan Times
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