GST Rate Rationalisation: Impact on Real Estate Prices & Construction Costs

India's Goods and Services Tax (GST), introduced in 2017, is a significant indirect tax reform. However, its complex multi-slab structure has been a common concern across various industries, particularly impacting the construction and real estate sector, which relies on diverse raw materials and services.

The GST Rate Rationalisation drive (GST 2.0) merged tax slabs and removed redundancies to simplify the system. The 12% and 28% slabs were eliminated, creating a streamlined structure with 5% and 18% rates.

This blog explores the impact of GST rationalisation on India’s real estate ecosystem and whether the reforms can truly make housing more affordable.

What Is GST Rate Rationalisation?

GST rate rationalisation simply means streamlining the tax structure by merging multiple slabs into fewer, clearer ones.

Originally, GST had five slabs — 0%, 5%, 12%, 18%, and 28%. Under the 2025 GST 2.0 reforms, the government removed the 12% and 28% slabs, retaining 5% for essentials and 18% as the standard rate. 40% GST is imposed on certain luxury items categorized as ‘sin goods.’ This move aligns India’s indirect tax system with global norms and reduces classification errors.

This shift brings simpler compliance for the construction sector. Fewer disputes and more predictable pricing can improve project efficiency and cash flow.

Before vs After: The New GST Slabs for Construction Materials

Here’s a look at how GST rates on key construction inputs have shifted following the rationalisation exercise:

GST Rate Rationalisation Impact on Construction Inputs

The ripple effect of GST rate rationalisation is first felt on raw material costs — the foundation of every building project. Construction typically allocates 50–60% of its total cost to materials like cement, steel, bricks, tiles, and fixtures. Hence, any tax shift in this segment directly influences overall project economics.

• Cement (28% to 18%)

  Cement alone contributes up to 15% of a project’s cost. The reduction from 28% to 18% is among the most significant outcomes of GST 2.0. Industry bodies estimate this could reduce end-to-end construction expenses by roughly 3–5%, depending on project scale.

• Tiles, Paints, and Finishes

  These finishing materials often accounted for classification confusion under previous slabs. The move to a uniform 18% rate simplifies billing and allows contractors to avail consistent input tax credits, improving project cash flows.

• Marble, Granite, and Natural Stone (12% to 5%)

  Luxury and mid-segment developers will see notable savings on interior and façade materials. The lower 5% GST rate reduces overall finishing cost and encourages greater use of domestic stone suppliers.

• Works Contract Services

  Under the unified 18% slab, both labour and material components are covered seamlessly. Developers no longer have to split invoices across categories, reducing the risk of audit disputes and simplifying ITC claims.

In essence, rate rationalisation translates into smoother accounting, predictable taxation, and marginal but meaningful cost savings for developers and contractors — especially those operating at scale.

How Developers Benefit from the GST Rate Rationalisation

For developers, GST rationalisation is an operational advantage. In the earlier multi-slab structure, project procurement teams had to juggle numerous rates, reconcile input credits from suppliers, and maintain complex compliance trails. Every variation in the slab created potential credit mismatches and blocked working capital.

Under the simplified 5%–18% model, developers now enjoy:

• Streamlined Input Tax Credit (ITC): With fewer slabs, invoices from vendors and subcontractors now align more consistently. This means faster reconciliation and fewer credit denials.
• Reduced Tax Litigation: Many earlier disputes arose over misclassification (e.g., 'Is this item under 12% or 18%?'). A unified rate minimized such ambiguity.
• Improved Project Cash Flow: Lower tax outflows on materials like cement and marble reduce the upfront GST burden on procurement.
• Better Cost Predictability: Developers can now model project budgets with fewer moving parts, improving pricing and investor confidence.

GST 2.0 gives developers a simpler, cleaner, and faster financial environment to operate in. The rationalisation encourages them to scale projects without the compliance drag that once slowed execution.

Will Homebuyers See Cheaper Prices with GST Rate Rationalisation?

In principle, a lower tax burden on inputs should translate into reduced property prices. But in practice, several layers separate material savings from the final sale price.

Factors that Support Price Reduction:

• Lower input costs: Reduced GST on cement, marble, and other materials directly lowers construction expenses
• Simplified compliance: Faster ITC cycles free up developer liquidity, potentially enabling discounts or payment flexibility
• Competition effect: In the affordable and mid-range markets, where demand is price-sensitive, developers may pass on some savings to stay competitive

Factors that Limit Price Reduction:

• Land and regulatory costs: These remain outside the GST framework and continue to rise
• Restricted ITC pass-through: In residential projects sold to individual buyers, the  full ITC benefit is not always claimable due to policy restrictions
• Existing inventory costs: Projects already under construction or pre-GST 2.0 pricing may not reflect the benefit immediately

GST rationalisation may not slash prices overnight, but it stabilises costs, creates headroom for developers to price more competitively, and reduces inflationary pressure in the sector.