Will the Two-Slab GST Proposal Benefit Homebuyers?
The government's proposal to introduce a two-slab GST regime with rates of 5% and 18% may reduce costs, but experts question whether real estate developers will pass on the benefits to homebuyers.
GstReal EstateTax ReformHomebuyersAffordable HousingReal Estate NewsAug 16, 2025
While the present GST structure charges nil or zero percent on essential food items, 5% on daily use items, 12% on standard goods, 18% on electronics and services, and 28% on luxury and sin goods, the new regime will have two slabs plus a special rate of 40% for luxury and 'sin' goods.
In the real estate sector, construction materials attract varying GST rates. Cement is taxed at 28%, steel at 18%, paint and varnishes at 28%, ceramic tiles at 18%, and sanitary ware at 18%. Services such as architectural design and project management are taxed at 18%. These rates directly influence project costs and, consequently, housing prices.
Under-construction residential property currently attracts 5% GST (1% for affordable housing), while ready-to-move-in property with an occupancy certificate attracts no GST. Under the proposed GST structure, most goods and services would fall under either the 5% or 18% slab, replacing the current 5%, 12%, 18%, and 28% rates. However, the key question remains: will developers pass on the savings to homebuyers, or retain them to protect profit margins?
“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,” says Vikas Bhasin, MD of Saya Group, a luxury real estate developer.
Pradeep Aggarwal, founder and chairman of Signature Global (India), agrees. “The housing sector stands to benefit from these reforms, as moving to a two-slab structure will not only make GST compliance easier for real estate developers but also help rationalise input costs, improve cash flows, and eventually reduce the cost of homes for buyers.”
Lower input costs may significantly boost affordability. For instance, if GST on cement reduces from 28% to 18%, developers will see a substantial reduction in construction costs. Currently, GST in the real estate sector applies through multiple rates. Affordable housing projects attract a GST of 1% without input tax credit, while non-affordable housing attracts a GST of 5%. Affordable housing is officially defined as a residential unit up to 60 sq. m carpet area in metropolitan cities and 90 sq. m in non-metros, priced up to ₹45 lakh.
However, even if the government reduces indirect taxes, the real question is whether developers will pass on the benefit to homebuyers. “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.
Affordable housing rates are likely to change substantially if the concessional tax treatment continues. However, luxury housing could see higher indirect costs if high-end fittings and finishes fall under the 40% luxury rate.
Experts believe that the revision of GST rates could do more than trim costs. It has the potential to bring a structural shift in the way real estate transactions are conducted. With the lowering of the overall tax burden, the sector could witness higher compliance, reduced cash dealings, and a greater flow of transactions through formal channels.
“A 10%–20% reduction in overall taxation would make property more affordable, spur transactions, and shift dealings into the formal economy, a major boost for India’s largely cash-oriented real estate sector,” says B. Srinivasan, director and founder of Shree Sidvin Investment Advisors.
Frequently Asked Questions
What are the proposed GST rates in the new tax regime?
The proposed GST rates in the new tax regime are 5% and 18%, with a special rate of 40% for luxury and 'sin' goods.
How will the new GST rates affect construction costs?
The new GST rates could lower construction costs by reducing the tax on materials like cement and steel, which are currently taxed at higher rates.
Will the cost of under-construction homes decrease with the new GST rates?
The cost of under-construction homes could decrease, but it depends on whether developers pass on the savings to homebuyers or retain them to protect profit margins.
What is the current GST rate for affordable housing?
The current GST rate for affordable housing is 1% without input tax credit.
How might the new GST rates impact the formalisation of property deals?
The new GST rates could lead to higher compliance, reduced cash dealings, and a greater flow of transactions through formal channels, potentially formalising the real estate sector.
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