How the New Two-Slab GST Plan is Set to Make Homes More Affordable and Boost Real Estate in India.

How the New Two-Slab GST Plan is Set to Make Homes More Affordable and Boost Real Estate in India

The Indian government is on the verge of implementing a significant reform in the Goods and Services Tax (GST) system that will simplify real estate taxation with just two GST slabs — 5% and 18%. This move, anticipated to roll out by Diwali 2025, aims to boost the real estate sector and make housing more affordable for buyers, especially first-time and middle-income homebuyers.

Simplifying GST Rates for Real Estate

Currently, the GST regime on construction materials is complex, with rates spanning 12%, 18%, and 28% on key inputs like cement, steel, paint, tiles, and sanitaryware. This multi-tiered tax structure adds considerable cost to housing projects, leading to higher prices for homebuyers.

The new two-slab system proposes to eliminate these varying rates and consolidate them into just two slabs:

• 5% GST on affordable and some mid-segment housing

• 18% GST on other housing projects and construction materials, including steel and cement (currently taxed at 28% and 18%)

A separate 40% GST slab will apply exclusively to luxury and sin goods, which may raise costs for luxury housing.

Expected Impact on Housing Prices and Market Sentiment

Industry experts and developers welcome this reform, highlighting several benefits:

• Lower Costs for Developers: With most construction material GST rates lowered to 18%, developers can reduce input costs significantly. The reduction from 28% to 18% on cement and paint alone will ease construction expenditure.

• Potential Price Reduction for Buyers: Lower developer costs could translate into home price drops ranging from 2% to 4% in affordable housing and 3% to 5% in mid-segment housing if tax savings are passed on.

• Improved Transparency and Compliance: Simplification will reduce compliance hurdles, enhance pricing clarity, and improve the regulatory environment under RERA.

• Boost to Demand and Sales: Lower prices and easier taxation are expected to revive buyer interest, especially in tier-2 and tier-3 cities, promoting faster inventory clearance.

• Positive Seasonal Impact: These reforms timed ahead of the festive season could trigger increased home purchases as buyers capitalize on the expected cost benefits.

Challenges and Considerations

While buyers and mid-segment markets stand to gain substantially, some concerns remain for the luxury housing segment. The proposed 40% GST slab for luxury construction materials and fittings could result in higher input costs, potentially translating to price increases in this segment.

Moreover, the absence or partial restoration of Input Tax Credit (ITC) may moderate the full benefits developers can realize, and by extension, what they can pass on to buyers.

What This Means for Homebuyers

For potential homebuyers, especially in affordable and mid-segment categories, the new GST regime promises:

• Reduced overall property costs

• Increased affordability and easier access to home ownership

• Enhanced market stability and transparency

First-time buyers and those in emerging urban hubs are particularly poised to benefit from these changes, as financing and pricing become more buyer-friendly.

Conclusion

The two-slab GST reform is a crucial policy shift designed to rationalize India's real estate taxation, ease the cost burden on developers, and most importantly, make housing more affordable for Indian families. While luxury housing might face some GST-induced cost pressures, the overall market outlook is optimistic, with the reforms expected to bring renewed liquidity, demand, and growth momentum to the sector.

As the government prepares to roll out these changes, homebuyers and developers alike should stay informed and ready to leverage the benefits this rationalized GST structure offers.