GST 2.0 Reforms to Reduce Construction Costs and Boost Housing Demand from Sept 22
The Indian government's 'Next-Gen GST Reforms' aim to simplify the tax structure and are expected to provide a significant boost to the residential, retail, and office real estate sectors by reducing construction costs and improving project viability.
Gst 20Real EstateConstruction CostsHousing DemandTax ReformReal EstateSep 19, 2025
These 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.
The type of property being purchased or developed determines the applicability of GST. For under-construction residential properties, the GST rates are as follows:
- Affordable housing: 1% GST (excluding input tax credit)
- Non-affordable housing: 5% GST (excluding input tax credit)
For commercial properties, the rate is:
- 12% GST (plus input tax credit)
Certain categories are exempt from GST, including:
- Ready-to-move-in homes with a completion certificate
- Resale properties
- Sale of land
The impact of GST on homebuyers and developers is significant. For 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.
For developers and builders, the reduced GST on essential construction materials will lead 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, centralized system. While it requires accurate invoicing and reporting, this framework reduces opportunities for tax evasion and promotes transparency. The GST has boosted the organized real estate sector by bringing greater transparency, which in turn improves investor confidence and decreases reliance on cash-based deals.
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.
Frequently Asked Questions
What are the key changes in the GST 2.0 reforms?
The key changes in the GST 2.0 reforms include moving from a four-rate system (5%, 12%, 18%, 28%) to a primarily two-rate system (5% and 18%), with a 40% special rate for sin/luxury goods. This simplification aims to reduce construction costs and improve project viability.
How will GST 2.0 benefit homebuyers?
GST 2.0 will benefit homebuyers by reducing construction costs through lower GST on key materials like cement. This is expected to lower home prices by 1-1.5%, making homeownership more affordable, especially in the affordable and mid-segment housing markets.
What impact will GST 2.0 have on developers?
GST 2.0 will reduce the tax burden on developers by lowering GST on essential construction materials, leading to significant cost savings. The Input Tax Credit (ITC) will further help developers maintain margins without impacting buyers.
Which properties are exempt from GST?
Properties exempt from GST include ready-to-move-in homes with a completion certificate, resale properties, and the sale of land.
How does GST 2.0 promote transparency in the real estate sector?
GST 2.0 promotes transparency by replacing multiple state-level taxes with a single, centralized system. This reduces opportunities for tax evasion and promotes accurate invoicing and reporting, leading to a more organized and investor-friendly real estate market.
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