GST Revamp 2025: How the 40% Slab on Luxury Fittings Affects Real Estate
The proposed 40% GST slab on luxury fittings and imported materials is set to impact the real estate market, particularly in the ultra-luxury segment. How will this affect homebuyers and developers? Find out what experts have to say.
GstLuxury Real EstateReal EstateHomebuyersDevelopersReal Estate NewsAug 30, 2025
The proposed 40% GST slab is expected to push up costs in the luxury housing segment. While affluent buyers are generally less price-sensitive, higher taxation could still affect the timing of purchases. Developers, meanwhile, face a difficult choice - to absorb part of the cost and shrink margins, or pass it on to customers at the risk of slowing sales, say real estate experts.
They say that the proposed 40% GST on imported fittings would raise the cost of premium finishes and specialised materials, pushing up construction expenses. While ultra-luxury buyers may absorb the increase, developers will need to tread carefully. Passing on the full burden could dampen demand in a market already strained by high borrowing costs, while cutting back on quality risks diluting the ‘luxury’ tag that commands premium pricing. A likely outcome could be a greater shift towards selling ‘raw apartments,’ homes delivered without interiors, leaving buyers to source and install high-end fittings themselves, they say.
Take a ₹10 crore apartment in South Mumbai as an example. Developers typically spend around ₹2 crore on imported interiors, from European kitchen systems to premium flooring. At the current 28% GST, the tax outgo is ₹56 lakh, pushing the interiors cost to ₹2.56 crore and the total property bill to ₹12.56 crore. If GST is raised to 40%, the tax alone rises to ₹80 lakh, taking the interiors bill to ₹2.8 crore and the overall property cost to ₹12.8 crore, an additional ₹24 lakh on a single apartment. Multiply this across a 50-unit project, the extra cost exceeds ₹12 crore.
For buyers in the ultra-luxury segment, this extra cost is unlikely to be a deal-breaker. However, developers face a tougher balancing act. Passing on the full amount risks weakening demand in a market already coping with high borrowing costs and slow absorption, says Kunal Sharma, founder and managing partner, Taraksh Lawyers & Consultants. Diluting the quality of interiors, on the other hand, could undermine the ‘luxury’ positioning that drives premium pricing. “The net effect may be a shift towards 'raw apartments' where homes are sold without interiors, leaving buyers to import and install fittings on their own,” says Sharma.
However, there is a reason why the rise in costs may not be that high. As understood from media reports and sources, the GST rate on cement may be reduced, and that on certain luxury interiors may increase. Even if such be the case, one has to see the GST 2.0 rate rationalisation impact on housing prices in totality, rather than separately for luxury interiors, etc. “It is understood that the cost of cement is around 15% of the total cost of a luxury housing project; and the cost of specified luxury interiors is around 10% to 15% of the total cost of a luxury housing project,” says Vivek Jalan, Partner, Tax Connect Advisory Services.
Now in case the cost of cement goes down by 10% (due to GST rates going down from 28% to 18%) and the cost of luxury interiors go up by around 12% (due to GST rates going up from 28% to 40%), the input costs of luxury projects should not see much of a change in the long run, as the GST costs would be offset against each other.
In the short run, for those projects that are near completion and hence cannot take the benefit of the decrease in cost of cement, they may have to take the hit of the increased GST on luxury interiors. In such cases, it may be a hit at the bottom-line of these projects in case they do not wish to pass on the increased costs. “Ongoing projects should closely track the GST Council’s September 4 decision. If rates are indeed hiked, builders can use the window between the announcement and its effective date to purchase luxury interiors at the current rate,” advises Jalan.
If the 40% GST on imported fittings and luxury interiors levied on homebuyers won’t stop spending, they will get smarter about structuring it. Some also stagger purchases, spreading costs and tax outgo over phases instead of paying upfront. “The bigger shift is that developers may increasingly hand over only the structure, leaving interiors to the buyer. The luxury will stay; only the packaging will change,” adds Sharma.
Frequently Asked Questions
What is the proposed 40% GST slab on luxury fittings?
The proposed 40% GST slab is a new tax rate that will be applied to luxury fittings and imported materials used in real estate projects, particularly in the ultra-luxury segment.
How will the 40% GST affect the cost of luxury apartments?
The 40% GST on luxury fittings and imported materials will increase the cost of premium finishes and specialised materials, pushing up the overall construction expenses and the final price of luxury apartments.
Will developers pass on the extra cost to homebuyers?
Developers face a choice: absorb the cost and reduce margins or pass it on to homebuyers. Passing on the full cost could dampen demand in a market already strained by high borrowing costs.
What is a 'raw apartment' and why might it become more common?
A 'raw apartment' is a home delivered without interiors, leaving buyers to source and install high-end fittings themselves. This approach could become more common to avoid the higher costs associated with the 40% GST on luxury fittings.
How can homebuyers manage the increased costs of luxury homes?
Homebuyers can get smarter about structuring their purchases, such as staggering the buying of luxury fittings over phases to spread the costs and tax outgo over time.
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