GST revamp 2025: Cheaper cement, steel likely — but will luxury housing costs rise?

A key meeting of the Group of Ministers (GoM) on GST rate rationalisation on Thursday concluded with states endorsing the Centre’s proposal to simplify the indirect tax system by reducing the number of slabs to two — 5% and 18%. The six-member panel, chaired by Bihar Deputy Chief Minister Samrat Choudhary, also agreed that a higher 40% levy would remain on select sin goods, with luxury cars added to that list. Officials said the new framework could be rolled out by Diwali, a move expected to ease compliance but one that also raises questions about its impact on critical sectors such as real estate.

Real estate in focus

Currently, real estate projects are affected by widely varying GST rates on construction inputs — 28% on cement and paint, 18% on steel, tiles, and sanitaryware. This uneven structure feeds directly into project costs and housing prices. Analysts argue that consolidating these rates could meaningfully reduce expenses for developers.

According to an Anarock analysis, affordable housing, currently taxed at just 1%, would see little immediate change. However, if input tax credits (ITC) are restored, home prices could fall by 2–4%. In the mid-segment, a reduction from 5% to 3% could bring down costs by 2–3%.

Abhishek Raj, Founder & CEO of Jenika Ventures, said the reforms could build on earlier GST-driven gains. “The 2019 cut in residential GST from 12% with ITC to 5% without ITC boosted buyer confidence in under-construction projects,” he noted. “But without ITC, long-term affordability in a middle-class dominated market remains difficult.”

Rising costs, squeezed margins

Construction costs have soared in recent years. Between 2019 and 2024, they rose nearly 40%, with a sharp 27.3% surge in just three years. Grade A project costs in tier-1 cities increased from Rs 2,200 per sq. ft in 2021 to Rs 2,800 in 2024. In this environment, tax relief on core materials like cement and steel could offer some relief.

Pawan Sharma, Managing Director of TRG Group, said affordability remains a tightrope. “Simpler tax rates have encouraged more homeownership, especially in affordable housing. But the withdrawal of ITC burdens project budgets — particularly with materials like cement and steel. Over time, these costs inevitably reach buyers.” Sharma added that reinstating partial ITC could strike the balance between buyer savings and developer viability.

Luxury housing concerns

The simplified system may not equally benefit all categories. Luxury housing projects, which rely heavily on premium materials, risk seeing higher costs if such inputs are shifted into the proposed 40% slab.

Sandeep Aggarwal, Chairperson & Managing Director of AIL Developer, welcomed the overall reform but sounded a note of caution. “Bringing cement and steel into the 18% bracket will help reduce costs. If this translates into a 10–20% decrease in tax burdens, pricing in metros and tier-II markets will improve. But for luxury housing, the 40% rate on fittings and finishes could hurt,” he said.

In markets such as North Goa, Aggarwal added, where demand for lifestyle homes is rising, simplified GST slabs may still encourage transparency and attract formal investments.

Viren Mehta, Founder & Director of ElitePro Infra, flagged similar risks in Gurgaon and Delhi-NCR. “Luxury projects depend on top-grade fittings and imported materials. If these fall into the 40% slab, costs will rise sharply, forcing consultancies to either raise prices or absorb losses,” he explained. However, Mehta believes robust demand in NCR’s luxury housing market may continue to support growth despite higher input taxes.

Building blocks

While the two-slab GST system promises clarity and easier compliance, the absence of ITC remains a sticking point for developers. Restoring it could magnify the benefits of reduced rates, especially in mid-income housing. For luxury projects, however, the 40% slab may complicate pricing strategies in an already competitive market.

With a festive-season rollout on the horizon, industry leaders, buyers, and policymakers will be closely watching. The GST overhaul could reshape not just the cost of construction but also the future of India’s housing market — from affordable homes to high-end luxury developments.