GST 2.0 to cut construction costs, boost housing demand from Sept 22

The Indian government's "Next-Gen GST Reforms" are set to be implemented on Monday, September 22, 2025. These changes were approved by the GST Council led by Finance Minister Nirmala Sitharaman. It aims to simplify the tax structure by moving from a four-rate system (5%, 12%, 18%, 28%) to a primarily two-rate system: 5% (merit rate) and 18% (standard rate), in addition to a 40% special rate for sin/luxury goods.

Game-changer for Indian real estate

The upcoming reforms are expected to provide a significant boost to the residential, retail, and office real estate sectors. It is anticipated to boost demand for housing, improve project viability and attract more institutional investment by streamlining the tax and lowering construction costs. A cut on the key construction materials, such as cement, is expected to reduce overall construction costs by 3-5% in the country.

GST tax structure

The type of property being purchased or developed determines the applicability of GST.

Under-construction residential properties

Affordable housing: 1% GST (excluding input tax credit)
Non-affordable housing: 5% GST (excluding input tax credit)

Commercial properties

12% GST (plus input tax credit)

Exempt categories

Ready-to-move-in homes with a completion certificate
Resale properties
Sale of Land

Impact of GST on homebuyers and developers

On homebuyers: With GST on key materials like cement dropping from 28% to 18%, construction costs are expected to fall by 3-5%, potentially translating to a 1-1.5% reduction in home prices for buyers. Lower construction costs, especially in affordable and mid-segment housing, will make homeownership more attainable for a larger population.

On developers and builders: Developers will benefit from reduced GST on essential construction materials, leading to significant cost savings. The implementation of the new reform has significantly reduced costs for developers and the Input Tax Credit (ITC) helps maintain margins without impacting buyers.

ITC reduces a developer's total tax burden and boosts their margins by allowing them to claim credit for taxes paid on construction materials and services, such as cement, steel, tiles, architecture, and engineering.

GST replaces multiple state-level taxes with a single, centralised system. While it requires accurate invoicing and reporting, this framework reduces opportunities for tax evasion and promotes transparency. The GST has boosted the organised real estate sector by bringing greater transparency, which in turn improves investor confidence and decreases reliance on cash-based deals.

Conclusion

The implementation of a simplified, two-slab GST system is expected to be transformative for the real estate market, making housing more affordable and boosting market transparency and buyer confidence by reducing construction costs and streamlining compliance.

Lower GST rates on construction materials are expected to decrease property prices, benefiting buyers.

While challenges remain, this "GST 2.0" is viewed as a significant growth catalyst for the sector, leading to a more transparent, stable, and accessible market for both buyers and developers.

Also Read: GST 2.0: Impact on manufacturing sector and expected benefits