The government is considering making GST rates easier, which can directly affect the real estate sector. If these changes are applied, then the cost of building a house can be reduced, which can also benefit buyers. At present, the goods used in construction cost different GST rates (18% to 28%), which increases the cost of the project.
However, experts believe that the prices of the house can be reduced by 2-4% by unanimous the rates and bringing back the input tax credit (ITC). This step can prove to be beneficial especially for the middle class, whose purchasing power is constantly burning with increasing cost.
Currently, real estate projects are on GST Rates are different. 28% on cement and paint, while steel, tiles and sanitary ware takes 18% GST. Due to this uneven tax structure, the cost of the project and the prices of homes directly increase. Experts say that by bringing these rates together, the cost of developers can be reduced significantly.
Will the prices of homes be low?
According to an Anarock report, affordable houses are currently imposed 1% GST, so there will be no major change in them immediately. However, if the input tax credit (ITC) is resumed, the prices of homes can be reduced by 2-4%. At the same time, in the mid-segment, if GST is reduced from 5% to 3%, the cost can be reduced by 2-3%.
Abhishek Raj, founder and CEO of Jenika Ventures, said that these changes can further increase the benefits made before GST. He said, “In 2019, by reducing residential GST from 12% (with ITC) to 5%, the trust of buyers in the projects under construction increased to 5%.” He added, “But, without ITC, it is difficult for a middle class to buy a house for a long time.”
Cost increase and pressure on profits
The cost of construction has increased a lot in recent years. Between 2019 and 2024, it has increased by about 40%, out of which a sharp increase of 27.3% has happened in just three years. The cost of grade A project in Tier-1 cities was ₹ 2,200 per sq ft in 2021, which increased to ₹ 2,800 in 2024, in such an environment, in such an environment, tax exemption on main items like cement and steel can provide some relief.
Pawan Sharma, managing director of TRG Group, said that maintaining the price of the house is a difficult task. “People are buying more houses due to easy tax rates, especially affordable homes. But, the removal of input tax credit (ITC) increases the budget of the project, especially due to goods like cement and steel. Finally, all these burden is on buyers.” Sharma further said that if a little ITC is implemented again, then the buyers will also benefit and it will be easy for the developers to work.
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Luxury houses concerns
All categories may not get the same benefit of the new easy system of GST rates. Luxury housing projects, which depend a lot on expensive goods, can increase the cost if such items are put in the proposed 40% slab.
AIL Developer Chairperson and Managing Director, Sandeep Aggarwal welcomed this reform, but also gave a warning. He said, “Bringing cement and steel within a radius of 18% will reduce the cost. If it reduces the tax burden 10-20%, then prices will be better in metro and tier-II cities. But for luxury homes, a rate of 40% can be damaged on fittings and finish,” Aggarwal further said that in markets like North Goa, there is a demand for lifestyle houses, there is easy GST’s transparency in markets like North Goa. May come and formal investment may be attracted.
Also read: Growing scope of second homes in Goa
Viren Mehta, founder and director of ElitePro Infra,, Viren Mehta, stated similar risks in Gurugram and Delhi-NCR. He explained, “Luxury projects depend on good -class fittings and imported goods. If they come in a slab of 40%, the cost will increase a lot, which will either have to increase prices or suffer losses.” However, Mehta believes that development may continue despite high input tax due to good demand in Delhi-NCR’s luxury housing market.
Main basis of construction
Even though it is easy and clear to follow the rules with a two-slab GST system, the absence of input tax credit (ITC) remains a major problem for developers. By re-implementing it, the benefit of decreased rates can increase even more, especially in middle-or-class houses. However, for luxury projects, a slab of 40% can make a strategy of fixing prices in an already competitive market.
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