GST Revamp 2025: Impact of 40% Slab on Luxury Real Estate and Homebuyers
The proposed 40% GST on luxury fittings and interiors could significantly increase the cost of premium real estate. Explore how this affects homebuyers and developers in South Mumbai and beyond.
GstLuxury Real EstateSouth MumbaiHomebuyersReal Estate CostsReal Estate MumbaiAug 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.
Will higher GST rates push up luxury real estate costs? 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.
Real estate's new math: Calculating post-GST costs. 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 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.
How developers can navigate rising GST on luxury interiors. 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.
Homebuyers’ checklist: How to manage taxes on luxury homes. 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
Will the proposed 40% GST on luxury fittings affect the overall cost of a ₹10 crore apartment in South Mumbai?
Yes, the proposed 40% GST on luxury fittings would increase the cost of interiors by ₹80 lakh, bringing the total property cost to ₹12.8 crore from the current ₹12.56 crore.
How can developers manage the increased GST costs?
Developers can absorb the cost, pass it on to buyers, or sell 'raw apartments' without interiors. They can also purchase luxury fittings before the new rates take effect if the GST Council announces the changes.
What is the impact of reduced GST on cement?
A reduction in the GST on cement could offset the increased costs on luxury interiors. If the cost of cement goes down by 10% and the cost of luxury interiors increases by 12%, the overall input costs for luxury projects should remain stable.
How can homebuyers manage the increased costs of luxury interiors?
Homebuyers can opt for ‘raw apartments’ and source the fittings themselves, or stagger their purchases to spread the tax outgo over time. They can also negotiate with developers to find cost-effective solutions.
What is the expected trend in the luxury real estate market due to the GST changes?
The trend is likely to shift towards selling 'raw apartments' where homes are delivered without interiors, leaving buyers to source and install high-end fittings themselves. This helps developers avoid passing on the full increased cost to buyers.
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