1. Current GST Structure: A Foundation for Understanding Construction Services & Projects
Affordable housing (since April 2019): 1% GST on construction services, without Input Tax Credit (ITC) 

Non-affordable residential projects: 5% GST without ITC, after considering a one-third deduction for land.

Commercial projects: Typically taxed at 18%, with ITC allowed.

Government/infrastructure projects (e.g., roads, bridges): 5% GST 


Construction Materials
Cement: 28% GST 

Bricks, granite, marble, tiles: Range between 5% and 28% 

Sand, crushed stones, gravel, building stones: 5% GST 

Steel and iron, pipes & fittings: 18% GST 

Paints, varnishes, wallpaper, electrical appliances: 28% GST 

Key Challenges Under Current Structure

High material costs: Materials like cement and paints attract steep GST rates, increasing project budgets

Limited ITC: Residential projects under concessional rates (1% or 5%) cannot avail ITC, shifting costs to developers and buyers 

Regulatory burden: Smaller contractors and developers face compliance difficulties due to digital filing and complex tax norms 

Reverse Charge Mechanism (RCM): Compliance cost increases when services are procured from unregistered suppliers—GST must be paid by developers, often without ITC offsets 

2. Proposed GST Reforms: Simplifying Tax Structure
Government’s Reform Proposals

Eliminate 12% and 28% slabs, consolidating GST into just two rates: 5% and 18% 

Lower taxes on essential goods and construction materials, such as cement and paints, shifting from higher slabs to 18% or even 5% 

Implementation timeline: Proposed changes may be rolled out by Diwali (October 2025) 

3. Potential Impacts of GST Reduction on Construction Sector

A. Cost Reductions for Developers & Buyers
Material cost relief: A drop in GST on cement, steel, and paints would directly reduce per-square-foot construction outlays. For example, Anarock estimates a reduction of ₹150 per sq ft if GST on cement moves from 28% to 18% 

Broader affordability: Lower input costs may translate to more affordable housing prices, reinforcing the effectiveness of the 1% or 5% regime.

B. Improved Margins for Developers
Lower construction costs help restore profit margins, particularly under pressure from rising labor and raw material costs—labor is up 150%, raw materials up ~40% since 2019, and overall cost per sq ft has increased by 27.3% 

C. Stimulus for Affordable Housing
Anarock emphasizes that with eased cost burdens, affordable housing supply could rebound, addressing persistent affordability crises.

D. Boost to Cement Manufacturers & Allied Industries

Cement stocks have already rallied strongly: Nuvoco Vistas (+47%), JK Cement (+42%), Star Cement (+34%), India Cements & Dalmia Bharat (~+33–25%)—driven by hopes of GST relief.

E. Broader Economic Implications

The tax overhaul may reduce inflation, elevate household consumption (which forms ~60% of GDP), and provide fiscal stimulus between 0.6%–0.7% of GDP.

Major consumer segments could benefit, potentially including the middle class and builders.

F. Potential Risks & Considerations

Revenue Impact: States reliant on GST revenue may face shortfalls, prompting resistance.

Transitional hiccups: Shifting to a two-slab system will need robust implementing guidelines and support structures. Temporary confusion may arise around applicability, compliance, and rate determination.

4. Synopsis: Before and After GST Reform
Parameter Current Scenario After Proposed GST Reduction

Material Costs High GST on cement (28%), paints (28%), steel (18%) Lower GST—major reductions especially on cement and paints

Construction Costs Elevated due to taxes + limited ITC benefits Reduced substantially, improving affordability
Developer Margins Under strain from rising labor and materials Improved margins—more project viability.

Affordable Housing Constrained supply and demand Likely revival with reduced costs
Compliance Load Complex with multiple slabs and RCM issues Simplified structure enhances ease of compliance.

Industrial Impact Varied Cement and allied stocks likely to benefit
Economic Spillover Modest Enhanced consumption, potential GDP stimulus

5. Conclusion & Forward View

Reducing GST within the construction sector stands to deliver significant benefits—by easing raw material costs, enhancing developer margins, and catalyzing affordable housing revival. Such reforms would also invigorate related industries, bolster consumption, and provide a broader macroeconomic impetus.

However, careful design and phased implementation are crucial. Policymakers must mitigate revenue shock, ensure clarity in GST application, and support smaller firms adapting to the restructured regime. If executed properly, this reform could be a game-changer for India's housing ecosystem and economy.