The real estate and construction sector in India has always been deeply influenced by government policy, taxation, and regulatory reforms. Among these, the Goods and Services Tax (GST) play a central role in shaping project economics, property pricing, and overall market sentiment. In September 2025, the 56th GST Council meeting approved significant rationalisation of GST rates, particularly on construction-related inputs. These changes, effective from 22 September 2025, mark one of the most meaningful tax reforms for the sector in recent years.

By reducing GST rates on high-cost construction materials like cement (28% → 18%) and stone/wood products (12% → 5%), the government has taken a decisive step towards lowering building costs, improving affordability, and stimulating demand in the housing market. While the existing GST framework for under-construction and ready properties remains unchanged, the rate cuts on inputs are expected to positively impact developers, buyers, financiers, and the larger economy.

1. What Exactly Changed?

The GST Council’s 56th meeting (3 September 2025) focused on a broad rate rationalisation exercise. The official CBIC notifications confirmed that the following revisions were implemented from 22 September 2025:

• Cement: reduced from 28% to 18%
• Stone and wood-related products: e.g., marble blocks, granite blocks, sand-lime bricks, and certain categories of wood joinery and packaging, reduced from 12% to 5%
• Additional building materials: several items used in interiors and finishing also saw cuts to either 5% or 18%, depending on classification

However, it is equally important to note what did not change:

• GST on residential real estate: Under-construction housing continues to be taxed at 1% (affordable housing) and 5% (non-affordable housing) without input tax credit (ITC).
• Ready-to-move-in properties: remain outside the scope of GST, with buyers paying only stamp duty and registration charges.
• Commercial real estate: continues under the standard GST regime, with ITC available.

Thus, the real change lies in the procurement cost of materials, which directly affects construction budgets, margins, and project feasibility.

2. Why Lower GST on Materials Matters

The impact of GST cuts on building materials flows through two key channels:

• Direct Cost Reduction:

Materials such as cement, stone, and wood products account for a sizeable share of construction costs. Lowering GST reduces the invoice price paid by developers and contractors. Industry assessments suggest that this translates into a 2–5% reduction in overall construction costs, depending on the type of project and its material intensity.

• Supply Chain & Cash Flow Benefits:
  In residential projects, where ITC is not available, developers cannot offset input GST against output tax. However, a lower tax rate on procurement eases cash outflows and reduces working capital stress. In commercial projects, where ITC is available, the benefit is immediate and more transparent, directly reducing the net tax burden.

Together, these effects improve liquidity, accelerate execution, and create scope for passing on benefits to end-buyers.

3. Positive Impacts Across Stakeholders:

A. Home-Buyers

• Affordability Boost: If developers share the savings, under-construction property buyers could see modest reductions in effective prices or enjoy better fittings and finishes at no extra cost.
• Mid-Market & Affordable Segments: These segments rely more heavily on basic materials like cement and stone, making them the biggest beneficiaries of rate cuts.
• Competitive Pressure: In markets with high supply, developers are likely to pass on a larger share of savings to attract demand.

B. Developers and Contractors

• Margin Flexibility: Developers can either reduce prices to spur sales or retain savings to strengthen margins. For many, this will improve profitability and create room for competitive pricing.
• Faster Execution: Lower procurement costs and eased cash flows can accelerate construction timelines. Faster delivery reduces financing costs, improves credibility, and enables quicker project launches.
• Better Product Offerings: Savings may also be reinvested into improving specifications, helping developers differentiate in crowded markets.

C. Investors and Financers

• Improved IRRs: Lower construction costs and faster execution timelines enhance project internal rates of return (IRRs).
• Lower Risk: Reduced cost pressures and smoother cash flows improve the credit profile of developers, making projects less risky for lenders and private equity investors.

D. Ancillary Sectors and Labour

• Spillover Benefits: Lower input costs can encourage higher construction activity, creating more demand for contractors, tradespeople, and suppliers.
• Job Creation: Government press releases have highlighted employment generation as a key outcome of this reform.

4. Quantifying the Likely Impact:

• Construction Cost Savings: Industry experts estimate a 3–5% reduction in construction material costs for most projects, with cement being the single biggest driver.
• Impact on Property Prices: A direct one-to-one pass-through is unlikely because land, approvals, and overheads also constitute large cost components. However, in price-sensitive segments, even a 2–3% effective reduction can improve EMI affordability and stimulate demand.
• Commercial Real Estate: With ITC availability, commercial developers are expected to see a faster and fuller benefit from the changes, making office, retail, and warehousing projects more attractive.

5. Key Caveats:

While the changes are positive, the extent of benefit transmission depends on several factors:

• Residential GST Structure: Since input tax credit is not allowed in residential projects, the savings will largely come through reduced procurement prices rather than credit offsets.
• Profiteering Monitoring: The CBIC has instructed field offices to monitor whether businesses pass on benefits. Non-compliance could attract scrutiny.
• Project Specifications: Premium projects with imported finishes may see limited benefit, while mid-market housing reliant on basic materials will gain more.

6. Practical Measures for Stakeholders:

For Developers

• Update procurement budgets immediately to reflect new rates.
• Negotiate with contractors and suppliers to ensure savings are locked in.
• Consider pricing strategies that balance margin protection with affordability.

For Buyers

• Ask developers for clarity on how GST savings will be factored into unit pricing.
• Compare competing projects in your micro-market to see who is passing on benefits more aggressively.

For Lenders and Investors

• Reassess project viability with revised cost structures.
• Factor in accelerated timelines when projecting cash flows and repayment capacity.

7. Broader Economic and Policy Implications:

The GST rationalisation has implications that go beyond individual projects:

• Stimulus to Demand: By making construction cheaper, the reform is expected to boost housing demand, supporting the government’s agenda of improving home ownership.
• Boost to Domestic Manufacturing: Cement, stone, and wood processing industries stand to gain from stronger demand.
• Urban Development: Lower input costs can make it easier to deliver infrastructure projects like schools, hospitals, and public housing, aiding India’s long-term urbanisation goals.

Conclusion

The September 2025 GST rationalisation is a structural positive for the real estate and construction ecosystem. By cutting taxes on essential building inputs, the government has reduced a key cost headwind for developers, improved the affordability outlook for buyers, and created space for greater investment in housing and infrastructure.

For developers, this translates into stronger margins, faster project execution, and better flexibility in pricing strategy. For buyers, it offers hope of more affordable homes, especially in mid-market and affordable segments. For investors and lenders, it improves project viability and reduces risk.

However, the degree to which buyers ultimately benefit will depend on how much of the savings developers choose to pass on. Competitive market conditions and regulatory monitoring are likely to encourage at least partial transmission.

In short, the reform is a win-win — supporting developers, empowering buyers, and strengthening the economy — while reinforcing the government’s vision of affordable and sustainable housing growth in India.