The government is planning to change the tax structure under GST 2.0, which will greatly benefit the real estate sector. With the GST reduction on cement, steel, tiles, and paint, homebuyers could save between ₹1.5 to ₹7.5 lakh. The middle class and affordable housing buyers will receive the most relief.
New Delhi: The central government is preparing to simplify the GST structure, which could bring significant relief to those dreaming of buying a home. In the GST Council meeting scheduled for September 3-4, a decision may be taken to reduce the existing four slabs to two: 5% and 18%. This will lower the prices of construction materials like cement and steel, potentially reducing the cost of flats by ₹150 per square foot. Consequently, buyers could directly save between ₹1.5 to ₹7.5 lakh on a 1,000 square foot flat.
What changes will be in GST 2.0
Currently, there are four GST slabs: 5 percent, 12 percent, 18 percent, and 28 percent. The government proposes reducing these to just two main slabs: 5 percent and 18 percent. Additionally, there are plans to levy up to 40 percent GST on luxury and sin goods. These reforms are expected to be finalized at the GST Council meeting in New Delhi on September 3 and 4.
Impact on the Real Estate Sector
Real estate experts say that GST 2.0 will primarily benefit homebuyers and builders. Currently, cement is subject to 28 percent GST, while steel, paint, and tiles are taxed between 18 and 28 percent. If these are moved to the 18 percent slab, the cost of construction will significantly decrease. It is estimated that flat prices could reduce by approximately ₹150 per square foot. This means a buyer could save up to ₹1.5 lakh on a 1,000 square foot flat.
Greater Benefit to the Middle Class
Buying a home has always been a major challenge for the middle class. Due to inflation and high interest rates, home prices are continuously increasing. In such a scenario, if taxes on construction materials are reduced, building and buying homes will become easier. Buyers in the affordable housing sector could benefit by up to ₹7.5 lakh.
Existing GST Structure
Currently, different types of flats in the real estate sector are subject to GST at different rates.
- Affordable housing up to ₹45 lakh is subject to 1 percent GST.
- Under-construction flats priced above ₹45 lakh are subject to 5 percent GST.
- Ready-to-move flats are not subject to any GST.
- Cement is taxed at 28 percent, steel at 18 percent, paint at 28 percent, and tiles at 18 percent.
Since 2019, builders have not been receiving the benefit of Input Tax Credit (ITC). This directly impacts the price of homes. For example, if a flat costs ₹25 lakh, the GST on construction materials adds a burden of approximately ₹5 lakh. This directly affects the customer's pocket.
How Much Will Be the Benefit
If GST 2.0 is implemented and construction materials are moved to the 18 percent slab, the cost of homes will decrease. Experts estimate that the middle class could save between ₹1.5 lakh to ₹7.5 lakh when buying a flat. This change will be especially relieving in the affordable housing segment.
Good News Expected by Diwali
If this proposal is passed in the GST Council meeting, homebuyers could get relief by Diwali. Builders also believe that lower construction costs will enable them to offer homes to buyers at better prices. This will rejuvenate the real estate sector and may lead to an increase in sales.
