GST 2.0: A Game-Changer for India’s Construction and Housing Sector
Share
The 56th GST Council meeting has delivered one of the most transformative sets of reforms since GST’s introduction in 2017. Effective from tomorrow, September 22, 2025, these reforms mark a turning point for India’s construction industry—a sector often described as the backbone of the economy and the country’s second-largest employment generator.
For years, construction companies, developers, and homebuyers have struggled with complex tax structures, high material costs, and delayed cash flows. The revised GST framework not only addresses these long-standing pain points but also opens up opportunities for affordable housing and large-scale infrastructure development.
At Luxarc, where we constantly track policy changes shaping India’s built environment, these developments hold special significance for both our industry partners and homebuyers in Thrissur, Kerala.
Simplifying GST: From Four Slabs to Two
Perhaps the most impactful change is the consolidation of GST rate slabs. The previous four-tiered system (5%, 12%, 18%, and 28%) has now been streamlined into just two primary rates: 5% and 18%.
For construction companies operating across multiple states, this shift removes a major compliance burden. No longer will contractors need to wrestle with classification disputes over whether an input falls under 12% or 28%. Instead, the simplified system enhances transparency, reduces delays, and improves predictability in project planning.
Cement, Marble, Granite: The Material Cost Revolution
The headline change for developers and contractors is the reduction of cement GST from 28% to 18%. With cement contributing roughly 15–20% of construction costs, this is more than just a marginal relief. Analysts estimate that overall project costs could reduce by 3–5% once the full supply chain recalibrates.
Other high-value materials have also benefited:
-
Marble and granite blocks: GST reduced from 12% to 5%.
-
Tiles and finishing materials: Rationalised to align with core building materials.
These changes directly support both premium projects and mass housing initiatives, improving project viability and offering more competitive pricing.
Affordable Housing Gets a Fresh Push
Affordable housing has remained a policy priority, and GST 2.0 strengthens this segment further. The 1% concessional GST rate for affordable homes continues, but when combined with reduced input costs, the sector is poised for renewed momentum.
With strong demand in tier-2 and tier-3 cities, developers now have a powerful incentive to revive stalled projects. For buyers, the possibility of lower prices makes homeownership more attainable. Importantly, this aligns with the government’s ambition of creating 100 million jobs by 2030, since housing construction is one of the most labour-intensive industries in India.
Faster Refunds, Stronger Cash Flows
A perennial issue in the sector has been working capital getting stuck in the system due to delayed refunds. GST 2.0 introduces pre-filled returns and faster refund mechanisms, promising a smoother flow of liquidity.
For developers managing long project cycles with heavy upfront investments, this change could significantly ease financial pressures. Infrastructure firms, too, are expected to benefit from more predictable cash flows, especially in large-scale government-backed projects.
Level Playing Field: Public vs. Private Projects
Another critical reform is the alignment of GST rates across government and private construction contracts. This removes distortions that previously created cost disparities and bidding inefficiencies. The result is a more consistent pricing strategy across the sector, fostering healthier competition and collaboration between public and private stakeholders.
Challenges on the Horizon
While the reforms are bold, their success will depend on implementation. Key challenges include:
-
Supply Chain Adjustment – It may take months for the new rates to be fully reflected in pricing.
-
Transparency Gaps – Without genuine cost pass-through, benefits may be absorbed by contractors instead of reaching end consumers.
-
Rising Labour Costs – Input savings may be offset by inflationary pressures in wages, especially given the ongoing skilled labour shortage.
What Developers Must Do Now
For real impact, industry players must act swiftly:
-
Update procurement strategies to capture the new pricing benefits.
-
Renegotiate supplier agreements and contracts to include tax-change clauses.
-
Invest in technology systems to manage new GST structures and ensure compliance.
-
Prioritise transparency so that cost savings are passed on to clients and homebuyers.
The Bigger Picture
GST 2.0 is more than a tax reform—it’s a chance to rebuild trust, efficiency, and growth in India’s construction sector. For developers, it offers cost relief and smoother compliance. For buyers, it promises affordability and transparency. And for the economy, it supports housing, jobs, and infrastructure development at scale.
At Luxarc, we believe this moment can set the foundation for a more professional, accountable, and growth-oriented industry. The path forward will require collaboration across stakeholders, but the potential rewards—affordable homes, thriving cities, and stronger economic growth—are well worth the effort.
| Aspect | Reform / Update | Impact |
|---|---|---|
| GST Rate Slabs | Consolidated from 4 slabs (5%, 12%, 18%, 28%) to primarily 5% and 18% | Simplifies compliance, reduces disputes, eases multi-state operations |
| Refunds | Pre-filled GST returns and faster refund processing | Improves cash flow, frees up working capital stuck in tax system |
| Cement | GST reduced from 28% → 18% | Cuts total project costs by ~3–5%, improves project viability |
| Marble & Granite Blocks | GST reduced from 12% → 5% | Benefits finishing/luxury housing segments |
| Government vs Private Contracts | Aligned GST rates | Removes distortions, enables consistent pricing, better collaboration |
| Affordable Housing | Concessional 1% GST retained, with lower input costs | Boosts affordable & mid-income housing, especially in Tier-2/3 cities |
| Employment Impact | Affordable housing boost linked to 100 million job goal by 2030 | Potentially increases construction sector employment |
| Commercial Construction | Standardised 18% GST | Provides clarity but raises costs for projects earlier at 12% |
| Challenges | 1. Slow supply chain price adjustment2. Limited transparency in cost pass-through3. Rising labour costs offset material savings | May dilute reform benefits |
| Immediate Strategies | Update procurement, renegotiate contracts, add change-in-tax clauses, upgrade tech systems | Ensures smooth transition and risk management |
| Overall Outlook | Historic opportunity for efficiency and transparency | Success depends on fair cost pass-through and industry accountability |