GST Cuts on Construction Materials: A Festive Boost for Real Estate
The GST Council's decision to reduce tax rates on essential construction materials is expected to lower project costs, benefiting both developers and homebuyers. However, the real impact will depend on whether developers pass on these savings.
Gst CutsReal EstateConstruction MaterialsHomebuyersDevelopersReal EstateSep 04, 2025
In its 56th meeting, the GST Council finalized a two-slab structure of 5% and 18%, terming it a Diwali bonanza for consumers. The rate cuts are expected to ease financial burdens and improve affordability across a wide range of goods. But when it comes to housing, experts say the impact on home prices will depend on several factors. Greater clarity is needed on input tax credit for buildings meant for rental use, and the key question remains whether developers will actually pass on the benefits to homebuyers or retain them.
Also, experts are of the opinion that the benefit of lower material costs is not expected to reflect immediately, as most developers are bound by contracts.
GST reforms: What homebuyers can expect
In particular, the government’s move to reduce GST on cement from 28% to 18% will significantly reduce construction costs in real estate.
“This move will help lower overall construction costs to some extent. It is also expected that developers will pass on these benefits to homebuyers by reducing property prices, which have risen sharply over the past few years,” says Deepak Kumar Jain, founder and CEO of TaxManager.in.
And it’s not just cement. Granite, marble, and travertine blocks, the uncut versions, have also come down significantly, from 12% to 5%. These cuts together could ease construction costs in a meaningful way.
“One important aspect that many are missing is fly ash bricks. Today, almost nobody uses traditional clay bricks; fly ash bricks have become the norm. The GST rate on these has also come down from 12% to 5%. This shift will impact the real estate sector positively because bricks are such a fundamental building material,” says Vivek Jalan, Partner at Tax Connect Advisory Services, a tax firm. In the press note, the term that has been used is sand lime bricks.
Anshuman Magazine, chairman and CEO (India, SE Asia, Middle East & Africa), CBRE said that the reduction of GST rates on cement and construction materials is a decisive step that provides much-needed relief to the real estate sector.
“With cement, steel, and other inputs typically accounting for nearly 40–45% of total construction costs, this reduction will meaningfully lower project expenses. Developers can now pass on part of these savings to homebuyers, improving affordability and stimulating demand across segments. This timely reform comes as a festive season boost, creating the right conditions to spur homebuyer sentiment and drive purchase decisions,” he said.
This benefit is expected to reduce overall project costs for developers, which can potentially be passed on to end-users in terms of lower property prices. “Of all the segments, residential real estate, especially affordable housing, is likely to get a boost in the near-mid-term. Moreover, with homebuyers already benefiting from lower EMIs after repo rate reductions throughout 2025, residential sales across major Indian cities can gain traction in the upcoming festive months,” said Vimal Nadar, National Director and Head, Research at Colliers India.
Clarity on input tax credit could unlock real estate growth
“The bigger concern, however, is the blockage of input tax credit on construction of buildings intended for renting out. The Supreme Court, in the Safari Retreat case, had held that ITC should be available in such cases. But the GST Council went for a retrospective amendment, saying ITC will not be available from July 2017, the very day GST was rolled out. That has created a lot of uncertainty in the industry,” says Jalan.
“If the GST Council can at least relax this provision prospectively, instead of retrospectively, it would be a blockbuster move for real estate. Developers are waiting for clarity here, because tax credits make a huge difference to project costs and long-term viability,” he said.
Will lower GST rates truly reach homebuyers?
Even if the government reduces indirect taxes, the real question is whether developers will pass on the benefit to homebuyers, experts say.
“There’s a possibility they may retain it to safeguard their margins, rather than lowering prices,” says Abhishek Kumar, founder and chief investment advisor of SahajMoney, a financial planning firm.
Also, experts are of the opinion that the benefit of lower material costs is not expected to reflect immediately, as most developers are bound by contracts.
However, the government has repeatedly said in press briefings, through the revenue secretary, and even by the finance minister that there will be strong engagement with the industry to ensure developers pass on the benefits of these tax cuts. “Ultimately, it is expected that market forces will also compel builders to pass on cost reductions to buyers,” says Jalan.
Long-term clarity on tax rates will enable the real estate sector to plan projects with greater confidence and better cater to the evolving needs of homebuyers, he added.
Frequently Asked Questions
What are the new GST rates for construction materials?
The GST Council has reduced the tax rates on essential construction materials to a two-slab structure of 5% and 18%. For example, the GST on cement has been reduced from 28% to 18%, and the rate on fly ash bricks has been reduced from 12% to 5%.
How will these GST cuts impact homebuyers?
The GST cuts are expected to reduce overall construction costs, which could lead to lower property prices. However, the actual impact will depend on whether developers pass on these savings to homebuyers or retain them to protect their margins.
What is the current concern regarding input tax credit for rental buildings?
There is a concern about the blockage of input tax credit (ITC) on the construction of buildings intended for renting out. The GST Council has made a retrospective amendment, which has created uncertainty in the industry.
Will the benefits of lower GST rates be immediate?
The benefits of lower GST rates may not be immediate, as most developers are bound by existing contracts. However, over time, these savings could lead to reduced project costs and potentially lower property prices.
How can homebuyers ensure that developers pass on the GST benefits?
Homebuyers can advocate for transparency and accountability from developers. Additionally, market forces and government engagement with the industry are expected to compel developers to pass on the cost reductions to buyers.
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