Budget 2026 wish list for realty: GST rationalisation, tax incentives and infrastructure support

As the Union Budget 2026 approaches, India’s real estate industry has stepped forward with a collection of policy requests it argues are necessary to keep housing affordable, revive stalled projects and attract long-term institutional capital. Industry associations, developers and market analysts have highlighted three recurring themes: further rationalisation of the Goods and Services Tax (GST) and construction-related levies, targeted tax incentives for homebuyers and builders (especially in affordable housing), and stronger infrastructure and regulatory support to accelerate project delivery and urban regeneration. The debate is less about a single headline demand and more about recalibrating fiscal and regulatory settings to address deeper structural pressures in the housing market.

What industry leaders are asking for

Industry bodies and trade groups have put forward several specific asks ahead of Budget 2026:

• GST rationalisation for construction and works contracts. Developers want simplified slabs and lower rates on construction services and input supplies so that final prices fall and litigation and compliance burdens ease. Some trade bodies have pushed to move certain construction activity from higher slabs to lower ones to reduce overall home prices.

• Re-definition and expansion of ‘affordable housing’. Associations like CREDAI have urged the government to raise the price ceiling used to define affordable units — arguing that existing thresholds are outdated in the face of rising input costs and land prices. One widely reported proposal seeks to roughly double the cap that determines which projects qualify for concessional treatments.

• Tax incentives for builders and buyers. Requests include higher home-loan interest deduction limits, extension of benefits to the new tax regime, tax credits for developers who build affordable or rental housing, and incentives to channel institutional capital (such as real estate investment trusts, funds and AIFs) into housing.

• Infrastructure-equivalent status and faster approvals. Developers want project and infrastructure status for residential projects (or at least affordable housing), faster clearances, streamlined land-use conversion and greater public investment in enabling urban infrastructure—roads, mass transit and sewage—that lift supply and lower the cost of development.

Taken together, these demands reflect a dual objective: stabilise affordability for buyers while improving developers’ cash flows and creditability to attract private and institutional funding.

Background — why these asks now

The real estate sector has been through a decade of major change. The introduction of RERA (Real Estate Regulatory Authority), demonetisation and the rollout of GST fundamentally altered financing, pricing and compliance. Post-pandemic demand recovery has been uneven: some segments — notably mid and premium urban housing — recovered quickly, while affordable and rental segments continue to face stress. Meanwhile, construction input costs, land scarcity near large cities, and tighter lending standards have kept effective prices higher than many households can afford.

GST itself has been through rounds of reform since its inception. In 2025 the government began a fresh push to rationalise GST slabs and reduce litigation and compliance complexities; industry leaders now say more sector-specific fixes are needed for construction and real estate value chains. They argue the present mix of tax rates, cesses and state-level charges creates cascading costs that ultimately pass through to homebuyers.

Simultaneously, the urbanisation imperative—and policy initiatives such as the push for more climate-resilient and transit-oriented development—mean that private developers are expected to deliver more complex, infrastructure-heavy projects. Many developers claim they need policy support to make such projects commercially viable.

Causes behind the policy pressure

Three structural causes drive the industry’s urgency:

1. Cost escalation across the value chain. Building materials, labour and compliance costs have risen faster than nominal wages in many local markets. Where tax rates apply at multiple stages—materials, contracts, services—they amplify the final price.

2. Shift in capital structure. Post-2018 stress in the non-banking financial sector tightened developer access to short-term credit. The industry is trying to substitute more stable institutional capital (REITs, private funds), but that shift requires clearer tax and regulatory incentives to make long-term investment attractive.

3. Demand-side affordability squeeze. While household credit expanded, real incomes and the debt servicing capacity of first-time buyers have not kept pace with price rises in many cities. This creates political and social pressure for policymakers to restore accessible homeownership pathways.

Effects on people and markets

The consequences of the current policy and market mix are tangible across households, developers and the broader economy.

• Homebuyers. For aspirational middle-class families and first-time buyers, small percentage differences in tax or interest relief can change the affordability equation. Where GST or other levies are reduced on construction inputs, developers may pass on savings to buyers; conversely, without relief, many lower-income households are priced out or pushed toward informal rental arrangements.

• Developers and employment. Real estate is a major employer across construction, allied manufacturing and services. Improved cash flows—through reduced tax friction, faster approvals and better access to institutional funds—can speed project completion, preserve jobs and reduce stalled inventory. Conversely, tax and regulatory uncertainty can slow investment and extend project timelines.

• Urban public finance and infrastructure. Cities face rising demand for public services. If the Budget pushes infrastructure spending—mass transit, water, sewerage—alongside enabling policies for private redevelopment, it could unlock denser, more sustainable growth. If not, pressure on urban systems will grow, raising costs across the board.

Trade-offs and complications

The industry’s wishlist is not without fiscal and policy trade-offs. Lowering GST or offering tax breaks reduces short-term revenue for the central and state governments. Policymakers must weigh this against the potential macroeconomic benefits—job creation, formalisation of housing supply and multiplier effects from construction activity. There is also the risk that tax relief without strong conditionality (for example, mandating that savings be passed to buyers or tied to affordable units) benefits developers’ margins more than end users.

Moreover, some GST demands—like reducing rates on work contracts—require careful design to avoid creating arbitrage or renewed litigation. Past rounds of GST rationalisation have shown that broad-based simplifications are politically and administratively difficult but possible when combined with robust digital compliance.

What a credible Budget response might look like

A budget that responds constructively could include a mix of measures across three buckets:

1. Targeted tax and GST adjustments. Rather than blanket rate cuts, the government could introduce targeted GST relief on specific construction inputs, clarify input tax credit rules for complex mixed-use projects, or extend concessional treatment to projects meeting defined affordable-housing or rental-housing criteria.

2. Buyer-facing incentives. Raising the home-loan interest deduction or making certain tax benefits available under both old and new tax regimes would directly improve affordability for households. Conditional interest subsidies or stamp-duty relief for first-time buyers in specified income bands could also be effective.

3. Infrastructure and regulatory enablers. Granting infrastructure-equivalent status to affordable and rental-housing projects, simplifying approvals through single-window systems, and scaling up public investment in transit and trunk infrastructure would reduce development costs and speed delivery. Linking incentives to outcomes—completed affordable units, rental supply added—would make fiscal support more accountable.

Future outlook

If Budget 2026 adopts a calibrated mix of the above measures, the sector could see a virtuous cycle: lower effective costs lead to improved demand, faster sales generate cashflows for developers, and institutional investors return to the market with longer-term capital. That could accelerate urban renewal projects, rental housing growth and formal affordable housing supply.

However, optimism is conditional. Any tax relief must be matched by oversight to ensure benefits reach buyers and that fiscal costs are sustainable. The government also faces competing priorities—fiscal consolidation, social spending, infrastructure for energy transition—which will shape how much headroom exists for sector-specific concessions.

Finally, technology and global capital flows will play a role: developers combining modular construction, better procurement and digital compliance will be better positioned to translate any tax gains into price reductions. Institutional investors will move if regulatory clarity—on GST, on land titling, and on project risk—improves. The interplay between policy design and market discipline will determine whether the 2026 budget becomes a turning point for housing affordability or a modest, temporary relief.

Conclusion

The real estate industry’s Budget 2026 wish list is a pragmatic reflection of ground realities: persistent affordability challenges for buyers, higher costs and tighter capital for builders, and an urgent need for enabling infrastructure. GST rationalisation, well-targeted tax incentives and infrastructure support feature at the top of the sector’s agenda. For policymakers, the hard task is to design measures that shore up demand and supply without undermining fiscal prudence—rewarding those reforms with clear conditions, sunset clauses and data-driven accountability to ensure the next phase of urbanisation is affordable, productive and inclusive.