GST on Construction in 2025 :Will Buyers Benefit from Lower Home Prices?

The government’s latest 2025 GST policies focus on reducing GST on construction materials and construction, thereby easing the cost for both builders and buyers. Announced on September 3, 2025, by Finance Minister Nirmala Sitharaman, the new system reduces the tax on cement (28% to 18%) and granite blocks (12% to 5%), while consolidating most items into two slabs: 5% & 18%. This change takes effect from September 22, 2025, just before Navratri. By lowering the GST on construction materials like cement, tiles and marble, the government aims to make housing projects more affordable and boost construction activity. The reform will cut building costs, increase demand in the real estate market, and improve housing access for both urban and rural families.

Latest Update: GST On Construction

The GST on construction materials [1] has been reduced to ease housing costs and support real estate growth. Starting September 22, 2025, cement will be taxed at 18% instead of 28%, and white granite blocks will drop from 12% to 5%. These major reforms aim to lower construction expenses and promote affordable housing across India. Below is the complete list of GST cuts on construction materials:

Construction Materials	Old GST	New GST
Cement	28%	18%
Bricks	12%	5%
Granite Blocks	12%	5%
Marble Slabs	28%	18%
Ceramic Tiles	28%	18%
Paints	28%	18%
Steels/Iron	18%	12%
Pipes & Fittings	18%	12%
Sand & Gravel	5%	5% (unchanged)
Timber & wood	18%	12%
Electrical fittings	18%	12%
Glass	28%	18%
Roofing materials	18%	12%
Hardware and fasteners	18%	12%
Concrete blocks	28%	18%
Plaster and Mortar	18%	12%
Roofing tar & Bitumen	18%	12%
Insulation materials	18%	12%
Aluminium products	18%	12%
Plywood & MDF	28%	18%

Basics of GST in Construction

GST [2] on construction services is a tax applied to materials and services used in building projects. Earlier, higher rates increased the cost for developers and homebuyers. Recent reforms, like reducing the cement GST from 28% to 18%, make homes more affordable. Lower rates ease project expenses, boost affordable housing, and encourage infrastructure growth. These changes simplify tax laws, promote transparency, and provide relief to both builders and buyers in the real estate sector.

GST Rates and Categories in Construction

Understanding GST is essential, as it directly impacts construction costs and housing affordability. The government has revised several slabs [3], and knowing the building material GST rate helps buyers, builders, and developers plan better. Below are a few services and materials to keep an eye on:

Service/Material	Old GST Rate	New GST Rate
Construction GST Rate (General)	18%	18%
Affordable Housing Apartment GST on construction services	1%	1%
GST on Building Non-affordable Housing Apartment	5%	5%
Commercial Apartments in REP (except RREP)	12%	12%
Works Contract GST Rate (Material supplied by the contractor)	12%	12%
Works Contract Services HSN Code and GST Rate (Only labor supplied by contractor)	18%	18%
Composite Supply of Works Contract and Goods (Goods < 25% of contract value	18%	18%
Composite Supply of Works Contract and Goods (Goods ≥ 25% of contract value)	12%	12%
Cement	28%	18%
Brick	12%	5%
Sand	5%	5%
Granite block	12%	5%

1. Affordable Housing

Affordable housing projects aim to provide budget-friendly homes for lower-income groups. As of 2025, the GST rate is 1% [4] without Input Tax Credit. This reduced GST on building construction supports affordable housing, making homes more accessible and cost-effective.

2. Non-Affordable Housing

Non-affordable housing attracts higher taxes compared to affordable projects. As of 2025, GST rates on residential properties are 5% [5] without Input Tax Credit. This GST on an under-construction property impacts buyers and costs, especially for premium and luxury housing.

3. Input Tax Credit (ITC) Consideration

The availability of Input Tax Credit (ITC) in the construction sector has changed and has a significant impact on the overall cost structure of real estate projects. ITC allows developers to claim a credit for the GST paid on inputs, which can then be utilised to offset the tax liability on the final product. However, it's essential to note that the applicability and utilisation of ITC can vary based on factors such as the type of project, the nature of expenses, and regulatory changes.

4. Benefits of Appropriate GST Classification

The classification of real estate projects into different categories based on affordability holds implications beyond just tax rates. Developers need to carefully assess the eligibility criteria for affordable housing and ensure that their projects meet the necessary standards. Proper classification not only determines the applicable GST rate but also enables developers to take advantage of any benefits, exemptions, or incentives associated with affordable housing initiatives.

Input Tax Credit (ITC) in Construction: A Key Component

Input Tax Credit [6] is a fundamental concept under GST that allows businesses to claim a credit for the tax paid on inputs used in the production or provision of goods and services. In the context of construction, ITC is a critical component that impacts both developers and the overall cost structure of a project. Developers can avail of ITC to offset the GST paid on various expenses related to construction, such as raw materials, services, and other inputs. This credit can significantly reduce the tax liability on the final product, thereby potentially leading to cost savings.

It's important to note that while ITC offers a mechanism to reduce taxes, its availability and utilisation in the construction industry are subject to certain conditions and restrictions, as outlined by the GST laws.

• How ITC Works in Construction: Input Tax Credit (ITC) [7] under the GST law [8] helps avoid double taxation in construction. Developers can claim credit for GST paid on inputs like cement, steel, and services, then offset it against the buyer’s collection. This reduces overall tax liability, prevents inflated property costs and ensures fair pricing. ITC benefits both developers and homebuyers, promoting transparency and affordability.

• Impact on Construction Costs: The availability of ITC directly affects a real estate project’s costs. Developers claiming credit on GST expenses save money, lowering property prices for buyers. However, ITC comes with restrictions. For instance, in affordable housing, the 1% [9] GST rate is applied without  ITC, meaning developers cannot claim input credits, even though buyers benefit from lower cost rates.

• Changes and Considerations: It's important to note that the rules and regulations related to ITC in the construction sector have evolved since the implementation of GST. Changes in policy, notifications, and amendments can impact the availability and utilization of ITC for developers. Staying informed about the latest developments and compliance requirements is crucial to ensure accurate GST calculations and reporting.

• Benefits for Developers and Homebuyers: For developers, the availability of ITC can lead to cost efficiencies, allowing for competitive pricing and potentially higher sales. Homebuyers can benefit from ITC indirectly, as reduced construction costs may translate into more reasonable property prices.

Composite Supply vs Mixed Supply: Understanding GST Treatment

In the realm of GST on construction, the classification of supplies is a critical aspect that determines the applicable tax treatment for various components of a real estate project. Understanding the distinctions between composite supply and mixed supply is essential for developers, contractors, and homebuyers to navigate the complexities of GST compliance accurately.

• Composite Supply: A composite supply involves the provision of multiple goods or services that are naturally bundled together in the ordinary course of business. In the context of construction, this could include a combination of materials, labor, and services required to complete a project. The key characteristic of a composite supply is that the different elements are provided together, and one element is considered the principal supply while the others are ancillary.

• Mixed Supply: A mixed supply, on the other hand, refers to the supply of two or more individual goods or services that are not naturally bundled but are provided together for a single price. In construction, this could involve the sale of a property along with additional items such as furniture, fixtures, or other amenities. Unlike composite supply, there is no principal supply in a mixed supply.

• GST Treatment: The distinction between composite supply and mixed supply is significant because it affects the GST treatment and tax rate applied to the supply. In a composite supply, the GST rate applicable to the principal supply is extended to the entire bundle. In a mixed supply, each component is taxed at its respective GST rate. For example, if a developer provides both construction services and materials as part of a composite supply, the GST rate applicable to construction services will apply to the entire package. In a mixed supply scenario, the GST rates for labor and materials will be applied individually to their respective components.

• Impact on Pricing and Tax Calculation: Understanding the difference between composite supply and mixed supply is crucial for accurate pricing and tax calculation. Developers need to correctly identify the nature of their supply to determine the appropriate GST rate and ensure compliance with GST regulations. Similarly, homebuyers benefit from transparency in pricing and accurate tax calculations, as it allows them to understand the composition of the cost and the tax implications.

• Navigating Composite and Mixed Supply in Construction: Proper documentation and classification of supplies are essential to ensure compliance with GST rules. Developers should clearly define the nature of their supply in contracts and agreements to avoid ambiguity. For homebuyers, understanding whether a supply is composite or mixed helps in evaluating the tax implications and making informed decisions.

Regulatory Changes and the Evolution of GST in Construction

The Goods and Services Tax (GST)[10] landscape is dynamic, with regulations and policies evolving over time to align with changing economic and industry dynamics. In the context of construction, understanding how regulatory changes have shaped GST implementation is essential for developers, contractors, and other stakeholders.

• Transition Period and Implementation: When GST was first introduced in India, there was a transition period during which existing construction projects needed to align with the new tax regime. Developers and contractors had to navigate the complexities of transitioning from the previous taxation system to the GST framework. Transitional provisions were introduced to address issues related to ongoing projects and to ensure a smooth transition.

• Updates and Amendments: Since the implementation of GST, there have been updates, amendments, and clarifications issued by the government and the GST Council. These updates may impact various aspects of construction, including GST rates, input tax credit, and compliance requirements. Staying updated with these changes is essential to ensure accurate calculation, reporting, and compliance.

• The Role of Affordable Housing: Affordable housing has been a focal point of government initiatives, and GST regulations have been designed to support this goal. The introduction of a reduced GST rate of 1%[11] for affordable housing projects without Input Tax Credit (ITC) is a prime example of how GST has been tailored to encourage the development of affordable homes. Developers and homebuyers involved in affordable housing projects need to understand the criteria and benefits associated with this category.

• Benefits for Stakeholders: Regulatory changes and updates in GST can have a significant impact on construction projects. Developers may experience changes in tax liabilities, compliance requirements, and project timelines. Homebuyers may witness fluctuations in property prices and the tax component of their purchases. Understanding these changes is vital for stakeholders to make informed decisions and adapt to the evolving GST landscape.

• Adapting to the Evolution of GST: Adapting to the evolution of GST is crucial for the construction industry. In 2025, reforms simplified the slabs to 5% and 18% (12), while the rates for cement and granite blocks were reduced to 18% and 5%, respectively. These changes reduce construction costs, encourage affordable housing and improve transparency. Developers and buyers benefit from fairer pricing, making real estate more accessible and growth-oriented.

Promoting Affordable Housing Through GST: Social and Economic Implications

The Goods and Services Tax (GST) regime in India has not only transformed the taxation landscape but has also played a pivotal role in promoting affordable housing initiatives. Affordable housing holds the promise of addressing the housing needs of various sections of society, and GST has been strategically used as a tool to support this goal. In this section, we'll delve into how GST contributes to the promotion of affordable housing and the social and economic implications it holds.

1. Affordable Housing: A Key Policy Objective

Affordable housing is a critical component of urban development, aiming to provide accessible and cost-effective housing options to low and middle-income groups. These initiatives are aligned with the broader goals of poverty alleviation, inclusive growth, and sustainable urbanization. By addressing the housing needs of different segments of society, affordable housing contributes to social welfare and economic stability.

2. GST and Affordable Housing: A Synergy

The introduction of a reduced GST rate of 1% for affordable housing projects without Input Tax Credit (ITC) is a strategic move to incentivize the development of homes that cater to the needs of economically weaker sections. This reduced rate not only reduces the tax burden on developers but also contributes to lowering the cost of construction. As a result, affordable housing projects become more financially viable, making them an attractive proposition for both developers and homebuyers.

3. Economic Implications

Promoting affordable housing through favorable GST rates has several economic implications:

• Increased Housing Supply: Lowering the cost of construction through reduced GST rates can incentivize developers to undertake more affordable housing projects, increasing the overall housing supply.
• Job Creation: A boost in affordable housing projects leads to increased demand for labor and materials, generating employment opportunities in the construction sector.
• Boost to Allied Industries: The construction ecosystem, including suppliers of building materials, fixtures, and fittings, experiences a surge in demand, fostering growth in these industries.

4. Social Implications

The impact of affordable housing initiatives supported by GST goes beyond economic benefits:

• Inclusive Housing: Affordable housing aims to bridge the housing gap for marginalized sections, ensuring access to basic amenities and a dignified living.
• Reduced Urban Congestion: By providing housing options within city limits, affordable housing helps mitigate urban migration and decongests urban centers.
• Enhanced Livability: Access to affordable housing enhances the quality of life, promotes community development, and contributes to social stability.

Challenges and Considerations

While GST provisions for affordable housing offer significant benefits, challenges related to implementation, project viability, and adherence to eligibility criteria exist. Developers need to ensure that their projects meet the prescribed criteria to avail of the reduced GST rate. Homebuyers must also evaluate the credibility of affordable housing projects and assess the overall value proposition.

Navigating GST in Construction: Practical Tips and Insights

Navigating the complexities of Goods and Services Tax (GST) in the construction sector requires a solid understanding of regulations, compliance, and best practices. Whether you're a developer, contractor, or homebuyer, here are practical tips and insights to help you effectively manage GST in construction projects.

• Stay Informed: Keep yourself updated with the latest GST regulations, notifications, circulars, and amendments related to the construction sector. Regularly visit official government websites and portals to stay informed about changes that may impact your projects.

• Consult Tax Professionals: Engage with tax consultants or professionals who specialize in GST. Their expertise can provide valuable guidance on compliance, input tax credit (ITC) utilization, and strategic tax planning.

• Proper Documentation: Maintain accurate records of invoices, receipts, and other relevant documents to support your GST calculations and claims. Detailed documentation is crucial for ensuring compliance and minimizing disputes.

• Classification of Supplies: Understand the distinction between composite supply and mixed supply. Properly classify your supplies to determine the applicable GST treatment and rates for different components of your project.

• Impact of Input Tax Credit (ITC): Evaluate the potential benefits of ITC in your project's cost structure. Determine when and how ITC can be utilized to offset your GST liability and enhance cost efficiency.

• Affordable Housing Criteria: If you're involved in affordable housing projects, ensure that your projects meet the eligibility criteria defined by GST regulations to avail of the reduced GST rate of 1%.

• Compliance with Transitional Provisions: If you're working on ongoing projects that spanned the transition to GST, adhere to transitional provisions and comply with requirements to ensure a smooth transition and avoid any penalties.

• Monitor Regulatory Changes: Regularly monitor updates and amendments related to GST in the construction sector. Be prepared to adapt to changes and adjust your strategies accordingly.

• Evaluate the Impact on Pricing: Developers, assess how GST rates and ITC impact your project's pricing strategy. Homebuyers, understand how GST influences property prices and tax components to make informed purchasing decisions.

• Seek Clarity: If you have any doubts or uncertainties regarding GST calculations, classifications, or compliance, seek clarification from relevant authorities or tax professionals.

How Can NoBroker Help?

The revised GST has lowered the cost of many construction materials, making homes more affordable. However, GST on an under-construction property continues at 5% without input tax credit, ensuring taxation stays simple. This is seen as a positive step, encouraging affordable housing and boosting real estate demand. For buyers, platforms like NoBroker further assist by reducing brokerage costs, providing verified listings, and making property searches easier and more cost-effective.

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