GST Rate Cuts Could Ease Construction Costs, but Buyers Need Clarity

The Goods and Services Tax (GST) in real estate has often confused homebuyers, developers, and investors. The GST Council’s recent rate reductions under GST 2.0 are expected to lower construction costs and make housing more affordable.

Cement and ready-mix concrete will now attract 18% GST, down from 28%. Bricks, tiles, and sand will be taxed at 5% instead of 18%, while paints and varnishes fall to 18% from 28%. These cuts aim to reduce overall construction costs.

Experts, however, caution that the benefits vary depending on property type and stage. “Most buyers skip the fine print. GST rules can significantly change what you actually pay,” says a Visakhapatnam-based tax consultant.

For under-construction homes, GST applies at 1% for affordable housing and 5% for other residential units, both without input tax credit (ITC). Affordable housing includes units priced up to Rs 45 lakh, with carpet areas of up to 60 sq. m. in metro cities and 90 sq. m. in non-metro areas. Without ITC, developers cannot offset taxes on raw materials, so prices remain relatively high despite the rate cuts.

Ready-to-move homes are exempt from GST if developers have Completion Certificates (CC) or Occupancy Certificates (OC). “Developers rush to get these certificates—it helps attract buyers quickly,” adds the consultant.

Commercial properties under construction attract 12% GST with ITC, allowing corporate buyers to claim credits. Land transactions remain exempt, though certain development agreements and joint ventures may still be taxable.

In the rental segment, residential leases for personal use are exempt, while commercial leases attract 18% GST. Developers face multiple taxes—5% on construction services, 18% on development rights, and 12% on composite construction contracts—which are passed on to buyers.

Experts note that while GST has improved transparency, it has not always reduced costs. Ready-to-move homes generally offer better value, while under-construction units remain expensive due to missing ITC and project delays.

GST 2.0’s rate cuts provide some relief, but buyers should understand the rules carefully to assess the true cost of property ownership.