Will the government's intention to restructure the tax system so that there are two GST rates

By Bricksnwall | 2025-08-16

Experts want to know if real estate developers would pass on the savings from the proposed GST change to 5% and 18% to homebuyers or keep the margins.

According to news sources, the Central government has suggested two tax rates of 5% and 18% for the new goods and services tax (GST), which is supposed to replace the current indirect tax system by Diwali this year.

The GST tax rate is 0% on basic food items, 5% on everyday things, 12% on standard goods, 18% on electronics and services, and 28% on luxury and "sin" goods. There will be two slabs under the new GST system, and luxury and "sin" goods would have a special rate of 40%.

The news comes only hours after Prime Minister Narendra Modi vowed to make changes to the Goods and Services Tax (GST) as a Diwali present for the country in his Independence Day speech.

When it comes to real estate, different types of building materials have different GST rates. For example, cement is taxed at 28%, steel at 18%, paint and varnishes at 28%, ceramic tiles at 18%, and sanitary ware at 18%. Services like project management and architectural design are taxed at 18%. These rates have a direct effect on the expenses of projects, which in turn affects the prices of homes.

There is a 5% GST on residential property that is still being developed (1% for affordable housing), however there is no GST on property that is ready to live in and has an occupancy certificate.

The new GST system would also do away with the current rates of 5%, 12%, 18%, and 28% and replace them with two slabs: 5% and 18%. Most things you buy or services you use will fit into one of these categories. Experts say that even if the government lowers indirect taxes, the most essential thing to ask is whether developers would pass on the savings to homebuyers or keep them to protect their profit margins.

Vikas Bhasin, MD of Saya Group, a high-end real estate developer, says, "A lower GST on homes that are still being built would be a big help." It would lower the cost of homes and make the real estate market feel better.

Pradeep Aggarwal, the founder and chairman of Signature Global (India), agrees. He says, "These improvements would boost the housing industry since converting to a two-slab structure will make it easier for real estate developers to follow GST requirements. This will also assist cut the cost of inputs, increase cash flow, and eventually lower the price of homes for buyers.

Things might be cheaper if the prices of inputs go down.

At the moment, the GST rates are different for real estate.

Affordable housing developments have to pay a 1% GST, but they can't obtain a refund for the tax they paid. On the other side, housing that isn't affordable has a GST of 5%. In big cities, affordable housing is a home with a carpet area of up to 60 square meters and a price of up to ₹45 lakh. In smaller cities, it is a home with a carpet space of up to 90 square meters.

Let's take a look at cement, which is a vital part. Developers will save a lot of money on building costs if the GST on cement drops from 28% to 18%.

The real question is whether developers will pass on the savings to homeowners, even if the government cuts indirect taxes. Abhishek Kumar, the founder and chief investment advisor of SahajMoney, a financial planning service, adds, "They might keep it to protect their margins instead of lowering prices."

If the concessional tax treatment stays the same, the prices of affordable homes are likely to change a lot. Experts suggest that luxury homes can have greater indirect expenses if high-end fixtures and finishes are included in the 40% luxury rate.

Push for property agreements to be more official

Experts suggest that altering GST rates might do more than just save costs. It might have a huge effect on how real estate deals are made. If the entire tax burden goes reduced, the industry might see increased compliance, less cash transactions, and more transactions happening through official channels.

B. Srinivasan, director and founder of Shree Sidvin Investment Advisors, says, "A 10%–20% reduction in overall taxes would make property more affordable, encourage transactions, and move dealings into the formal economy, which would be a big boost for India's mostly cash-based real estate sector."

Source: Hindustan Times