Government Proposes Simplified Two-Tier GST with 5% and 18% Rates; Real Estate Sector Anticipates Relief
The Central government is considering a major overhaul of the Goods and Services Tax (GST) structure, introducing just two primary slabs—5% and 18%—alongside a 40% levy for luxury and “sin” goods. This simplified regime aims to streamline tax compliance and benefit sectors like real estate.
GstReal EstateTax ReformGovernment PolicyConstruction CostsReal EstateAug 16, 2025
At present, essential food items are exempt from GST, while daily-use goods are taxed at 5%, standard goods at 12%, electronics and services at 18%, and luxury items at 28%. The proposed shift to a two-slab model aims to simplify compliance and streamline the tax structure.
The announcement follows Prime Minister Narendra Modi’s Independence Day address, where he promised “next generation GST reforms” as a festive gift for the nation.
The real estate sector, in particular, is closely watching the development. Currently, construction materials attract different tax rates—cement at 28%, steel at 18%, paints and varnishes at 28%, ceramic tiles at 18%, and sanitary ware at 18%. Services like architecture and project management are also taxed at 18%, significantly influencing construction costs and property prices.
While under-construction residential properties attract 5% GST (1% for affordable housing), completed projects with occupancy certificates remain exempt. Experts believe the simplified tax slabs could bring relief to both developers and homebuyers.
“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,” said Vikas Bhasin, MD of Saya Group.
Pradeep Aggarwal, founder and chairman of Signature Global (India), echoed the view, noting that the move would “not only make compliance easier for real estate developers, but also help rationalise input costs, improve cash flows, and eventually reduce the cost of homes for buyers.”
However, industry analysts caution that the real impact will depend on whether developers pass on the benefits of reduced taxation to homebuyers, or retain them to safeguard margins.
Frequently Asked Questions
What is the proposed GST structure?
The proposed GST structure includes two primary slabs—5% and 18%—alongside a 40% levy for luxury and “sin” goods.
When is the new GST structure expected to be implemented?
The new GST structure is expected to be implemented by Diwali this year.
How will the real estate sector benefit from the new GST structure?
The new GST structure could simplify tax compliance, reduce construction costs, and make housing more affordable for both developers and homebuyers.
What are the current GST rates for construction materials?
Currently, construction materials attract different tax rates: cement at 28%, steel at 18%, paints and varnishes at 28%, ceramic tiles at 18%, and sanitary ware at 18%.
Will the benefits of reduced GST be passed on to homebuyers?
The real impact will depend on whether developers pass on the benefits of reduced taxation to homebuyers, or retain them to safeguard margins.
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