GST 2.0: Navigating the New Tax Blueprint for Home Construction

 

The Goods and Services Tax (GST) landscape for the Indian construction and real estate sector has undergone significant reforms, collectively aimed at simplifying tax structure, ensuring transparency, and potentially lowering the overall cost of homeownership. These "GST 2.0" changes focus on two major areas: the tax rates on under-construction property (construction services) and the rates on key construction materials.

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1. New GST Rates for Property Buyers (Construction Services)

The government has streamlined the GST rates applicable to the transfer of property before the Occupancy Certificate (OC) or Completion Certificate (CC) is issued. Crucially, the rates are now offered without the option for the developer to claim Input Tax Credit (ITC) on the raw materials and services used. This withdrawal of ITC was intended to ensure the final consumer benefits directly from the reduced tax rate.

Property Category	Conditions	GST Rate (Without ITC)	Key Implication
Affordable Housing	Value up to ₹45 lakh AND carpet area up to 60 sq. m. (metros) or 90 sq. m. (non-metros).	1%	A major incentive for first-time buyers and the PMAY scheme.
Non-Affordable Housing	All residential properties exceeding the affordable housing limits.	5%	Significantly reduced from the previous effective rate of 12%.
Commercial Property (Standard)	Standalone commercial projects (shops, offices).	12%	ITC is available to the developer in this segment.
Ready-to-Move Property	Properties with a valid OC or CC.	0%	Treated as the sale of an immovable asset, outside the purview of GST.

Understanding the Calculation

GST is only applicable to the construction value, not the total property price including land. The government simplifies this by deeming that one-third (1/3rd) of the total agreement value is the value of the land, which is exempt from GST.

The final tax is calculated on the remaining two-thirds (2/3rds) of the total price at the applicable rate (1% or 5%).

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2. Significant Relief on Construction Materials

Beyond the reduced service rates, the recent GST 2.0 reforms have delivered a massive cost reduction on essential building materials by simplifying the overall tax structure to two main slabs (5% and 18%). This directly benefits self-constructors and should lower project costs for developers.

The single biggest tax cut in the construction sector is:

Material	Old GST Rate	New GST Rate (Effective Sept 22, 2025)	Impact
Cement	28%	18%	Direct savings of ₹25–30 per 50 kg bag.
Tiles, Paints, Coatings, Wallpaper	28%	18%	Makes finishes and home improvements more affordable.
Steel & Iron Products	18%	18%	Rate remains steady.
Sand-lime bricks, Marble/Granite Blocks	12%	5%	Significant reduction on natural materials.
PVC Pipes	Varies	5%	Important cost reduction for plumbing infrastructure.

This material rate cut offers tangible relief, potentially saving a homeowner building a mid-sized, 1,500 sq. ft. home tens of thousands of rupees just on materials like cement and tiles.

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3. Key Takeaways for Homeowners and Builders

For the Homeowner/Buyer 🏡

1. Prioritize Ready-to-Move: Purchasing a property after the OC/CC is the only way to fully avoid GST.
2. Verify Affordable Status: If your property meets the ₹45 lakh price and carpet area limits, ensure the builder charges only 1% GST.
3. Demand Transparency: For under-construction projects, ask your developer to provide a detailed cost sheet. Since the developer cannot claim ITC on residential projects, their operational costs have been simplified, and the material rate cuts should ideally be reflected in the final selling price.

For the Builder/Developer 🏗️

1. Compliance on Procurement: Under the 1% and 5% residential schemes (without ITC), builders are required to procure at least 80% of their inputs and input services from registered suppliers. Failing this requires paying 18% GST on the value of the shortfall.
2. Transition for Ongoing Projects: Projects that commenced before the new rates were implemented were given a one-time option to switch from the old scheme (12%/18% with ITC) to the new reduced rates (5%/1% without ITC).
3. Commercial Projects: The 12% rate for commercial property (non-RREP) with ITC remains in place, distinguishing it clearly from the residential sector.

The GST reforms represent a major structural shift, fundamentally changing how property tax is calculated and collected. While the lower rates for under-construction residential properties are a welcome move, understanding the withdrawal of ITC and the material cost savings is essential for both the industry and the end consumer to maximize the benefits.

Paper-Thin Margin of Error: The Compliance Nightmare of End-Use GST Exemption

 

The 56th GST Council introduced a major rate rationalization for paper and paperboard (HSN 4802), creating a complex, use-based exemption that has sparked significant compliance concerns within the industry. The core issue revolves around a single question: Can a manufacturer or trader reliably determine how a roll of paper will be ultimately used by the end customer at the time of sale?

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The New Dual-Rate Structure

The change, implemented via Notification Nos. 09/2025 and 10/2025-Central Tax (Rate), establishes a two-tiered system for uncoated paper:

Paper Type	End-Use Condition	GST Rate	Legal Implication
Exempted	Used for exercise book, graph book, laboratory notebook, and notebooks.	Nil Rate	Exemption hinges entirely on this specific downstream use.
Taxable	Used for all other purposes (e.g., general printing, packaging).	18%	The default, standard rate.

This makes the taxability of an identical good (uncoated paper) dependent not on its physical characteristics, but on its contractual or ultimate purpose—a condition notoriously difficult to police in a multi-stage supply chain.

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Key Compliance Risks for Manufacturers and Traders

The new framework places the onus of proof squarely on the taxpayer (the manufacturer or supplier) claiming the nil rate. If the end-use condition is violated or cannot be proven, the supplier faces immediate liability and financial demands.

1. Burden of Proof and Audit Risk

v  Risk: The Supreme Court has long maintained that the burden of proving an exemption lies with the taxpayer. A manufacturer claiming the nil rate must be prepared to demonstrate that the paper was actually destined for notebook production.

v  Consequence: In the absence of verifiable proof, the GST department can deny the exemption and demand the 18% tax, plus interest (Sec. 50) and penalties (Sec. 73/74 CGST Act).

2. Input Tax Credit (ITC) Restriction

v  Risk: Under CGST Section 17(2), ITC on inputs is disallowed if the corresponding output supply is exempt. A paper mill whose product is used for both exempt (notebook paper) and taxable (other printing paper) supplies must now apportion and reverse the ITC for the portion used in the nil-rated supply.

v  Consequence: This creates a cash flow impact and increases the administrative complexity of calculating and reversing ITC, particularly for companies with mixed output usage.

3. Documentation and Procedural Error

v  Risk: For a validly exempted supply, the supplier must issue a "Bill of Supply" (not a regular Tax Invoice) as mandated by CGST Section 31(3)(c).

v  Consequence: Issuing the wrong document—a tax invoice for a nil-rated supply—is a procedural violation that can also attract penalties, highlighting the formal nature of claiming the exemption.

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Suggested Safeguards and Policy Recommendations

To mitigate these risks, industry experts recommend stringent practices, while also urging the government to simplify the policy.

Industry Safeguards

v  Written Declarations: Obtain a formal, written "end-use declaration" from the buyer, certifying the paper is strictly for the exempt purpose (e.g., exercise books). This should be explicitly attached to the sales documents.

v  Contractual Clauses: Include indemnification clauses in supply agreements, obliging the buyer to bear the cost of tax, interest, and penalties if they violate the agreed-upon end-use.

v  Correct Invoicing: Consistently issue a Bill of Supply for nil-rated transactions, explicitly noting the "Nil-rated" status and the specific exempt purpose.

Policy Suggestions to the CBIC/GST Council

1. Redefine the Exemption: Change the condition from "end-use" to a more objective measure, such as creating a separate, unambiguous tariff heading for "educational paper" based on technical specifications or linking the exemption to the buyer's status (e.g., a recognized educational publisher).
2. Issue Clarification: Provide an official circular prescribing the acceptable documentary evidence (like a form or certificate) that the supplier can use to prove end-use validation, similar to documentation for merchant exports.
3. Address ITC Issue: Consider granting specific relief or a partial refund mechanism for the ITC attributable to the exempt notebook paper, to alleviate the financial burden on manufacturers.

The Price of Convenience: How New GST on Delivery Charges Hit Zomato's Growth

 
The financial landscape for India's food-tech giants is constantly evolving, often dictated by regulatory shifts. Following its Q2 FY26 results, Zomato’s parent company, Eternal, confirmed a tangible impact on its core food delivery business: the newly implemented 18% Goods and Services Tax (GST) on delivery charges has acted as a headwind, slightly slowing growth.

Eternal’s CFO, Akshant Goyal, elaborated on this dynamic, providing a clear window into how taxation policies immediately affect consumer behavior and, consequently, the company's financials.

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The 18% GST Burden and Customer Reaction

Effective late September, a key regulatory change mandated that e-commerce operators like Zomato are now responsible for collecting and paying 18% GST on the delivery fees charged to customers. This clarification by the GST Council closed a loophole where delivery fees were previously treated as a pass-through cost, exempt from GST.

Passed on to the Consumer

The most significant takeaway from the CFO's statement is that this tax burden has been passed on to the customer.

v  Impacted Orders: This change affects approximately 25% of all food delivery orders—specifically, those where the customer pays a delivery fee. (The existing "platform fee" already attracted 18% GST).

v  The Cost Factor: By increasing the final cost to the consumer, the platform observed a "slight negative impact on the growth of the business." Even a modest increase in the transaction price can cause some customers to pause, delay, or reduce the frequency of their orders, especially during periods of soft discretionary consumption.

A Tale of Two Platforms: Zomato vs. Blinkit

It is crucial to note the differential impact across Eternal's portfolio. While the food delivery arm (Zomato) felt the pinch, the quick commerce segment (Blinkit) remained unaffected by this specific change.

v  Blinkit’s Model: Blinkit’s model for engaging with its delivery partners meant that delivery charges were already inclusive of 18% GST, resulting in no change or incremental tax burden on its customers.

v  A Separate Boost: In fact, Blinkit benefited from separate, simultaneous GST rate cuts on its typical basket of products (estimated at a 3 percentage point reduction). This is expected to be a demand driver for the quick commerce business from Q3 FY26 onwards, effectively offsetting the cautious consumer sentiment seen in Q2.

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Q2 FY26 Financial Context

The GST change on delivery charges was one of several headwinds Zomato's food delivery business faced during the quarter. While overall company revenue soared by 183% to ₹13,590 crore, largely driven by the explosive 137% YoY growth in Blinkit's Net Order Value (NOV), the core food delivery segment showed a slower recovery.

v  Food Delivery NOV: Grew by 14% Year-on-Year (YoY). While this was a slight sequential improvement, management noted that the overall recovery was "slower than expected."

v  Headwinds: The slow uptick was attributed to several factors:

1. Soft discretionary consumption across India.
2. The ongoing impact of quick commerce growth (customers buying essentials via Blinkit instead of ordering food).
3. Increasingly volatile weather conditions (extreme heat and extended rains).

Despite the profitability of the food delivery segment reaching a record high, the increased tax on delivery charges remains a structural factor that adds friction to the customer experience, making cost management and demand generation a continuous balancing act for the platform.

This complexity underscores the tightrope walk that digital platforms must navigate: ensuring regulatory compliance while simultaneously striving to keep services affordable for the consumer to drive sustainable growth.

🏨 Unlocking Growth: FHRAI Urges Finance Ministry to Overhaul GST for the Hospitality Sector

 

The Federation of Hotel & Restaurant Associations of India (FHRAI), the apex body for the Indian hospitality industry, has submitted a comprehensive representation to the Finance Ministry, urging an urgent rationalization of the Goods and Services Tax (GST) framework. The industry argues that existing GST anomalies are creating structural challenges, stifling investment, and hindering the sector's global competitiveness.

The key demands presented to Finance Minister Nirmala Sitharaman focus on three critical areas: restoring the seamless flow of Input Tax Credit (ITC), simplifying the tax structure for food & beverage (F&B) services, and providing an amnesty scheme to resolve legacy disputes.

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1. The Critical Need to Restore Input Tax Credit (ITC)

The most significant pain point highlighted by the FHRAI is the withdrawal of Input Tax Credit (ITC) on hotel rooms priced below a specific threshold.

The ITC Paradox

Currently, hotel accommodation attracts two primary GST rates:

1. 5% GST (Without ITC): For rooms with tariffs up to ₹7,500 per unit per day.
2. 18% GST (With Full ITC): For rooms with tariffs above ₹7,500 per unit per day.

While the reduction in GST to 5% for the mid-segment was intended to boost affordability for consumers, the simultaneous denial of ITC has had an adverse effect on businesses. Hotels in this critical mid-segment can no longer claim credit for the GST paid on major operational and capital inputs, such as:

ü  Rent and lease payments.

ü  Maintenance, repairs, and utilities.

ü  Capital expenditure on new construction or renovation.

This unrecoverable tax becomes a direct cost, leading to a cascading effect that inflates operational expenses and strains liquidity, disproportionately affecting mid-scale hotels.

FHRAI’s Solution:

ü  Restore ITC: The association has strongly recommended the restoration of ITC benefits even at the 5% GST rate to honor the foundational principle of a seamless credit chain under GST.

ü  Revision of Threshold: To align with current market realities, FHRAI proposed increasing the ₹7,500 tariff threshold to ₹12,500. This revision accounts for inflation and currency depreciation since the rates were first fixed in 2017, providing greater pricing flexibility, especially during peak tourist seasons.

ü  Reclassify Rooms: FHRAI also suggested considering hotel rooms as 'plant and machinery' for the purpose of ITC eligibility, providing a legislative mechanism for credit restoration.

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2. Delinking F&B GST Rates from Room Tariffs

The current GST framework creates an awkward and inefficient link between the tax rate for a hotel's F&B services (restaurants and coffee shops) and the room tariff of the hotel.

The Current Distortion

The tax rate for hotel-based restaurants is determined by the cost of the most expensive room:

ü  5% GST (Without ITC): Applies if the room tariff is below ₹7,500.

ü  18% GST (With Full ITC): Applies if the room tariff is ₹7,500 and above.

This linkage creates operational disparity and compliance headaches. It compels mid-segment hotels (which fall into the 5% slab) to adhere to the non-ITC structure for their restaurants, discouraging investments in hotel-based dining and limiting the flexibility to adjust room tariffs based on market demand.

FHRAI’s Proposal:

FHRAI has demanded that the GST rate for F&B services in hotels be completely delinked from the accommodation tariff. They proposed giving all hotel-based restaurants the flexibility to choose between:

ü  18% GST with full ITC, or

ü  5% GST without ITC.

A study by FHRAI suggests that by relaxing the current ₹7,500 constraint, hotels could dynamically adjust tariffs during high-demand periods, potentially increasing annual GST collections by over ₹4,000 crore.

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3. Seeking Amnesty for Legacy GST Disputes

Since the rollout of GST in 2017, the hospitality sector has faced numerous demand notices stemming from interpretational ambiguities, not tax evasion. Key areas of dispute include:

ü  Declared Tariff vs. Transaction Value: Confusion over whether GST should be calculated on the hotel’s internal 'declared tariff' or the actual 'transaction value' (the price paid by the customer).

ü  OTA Commission: Disputes arising from inflated room rates displayed by Online Travel Agencies (OTAs) that include commissions, even though the hotel only receives a lower amount that falls within the lower GST bracket.

FHRAI has urged the Finance Ministry to invoke Section 11A of the CGST Act, 2017 (introduced via the Finance (No. 2) Act, 2024), to implement a mechanism for the regularization or amnesty of these long-pending, disputed past GST dues. This move would provide a final resolution to unnecessary litigation and restore business confidence in the sector.

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A Step Towards Viksit Bharat @ 2047

In conclusion, the FHRAI's demands are not merely for concessions but for a fair and rational tax structure that supports India’s ambition to be a global tourism powerhouse. By implementing these key GST reforms—restoring ITC, delinking F&B rates, and resolving past disputes—the government can significantly simplify compliance, reduce litigation, and ensure that the hospitality sector becomes a major contributor to the goal of Viksit Bharat @ 2047.

🔒 Digital Walls: CBIC Streamlines Look Out Circulars with New Online Portal

 

The Central Board of Indirect Taxes and Customs (CBIC) has implemented a significant digital reform by making the use of its Online Look Out Circular (LOC) Portal mandatory for all Customs and GST field formations. This move, mandated by Instruction No. 30/2025 issued on October 13, 2025, replaces the conventional manual process, aiming for enhanced efficiency, transparency, and coordination in revenue intelligence and enforcement operations.

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What is a Look Out Circular (LOC)?

A Look Out Circular (LOC) is a powerful, non-bailable coercive measure used by various law enforcement agencies in India to prevent or track individuals—both Indian citizens and foreign nationals—who are wanted in connection with criminal, customs, or financial investigation cases, from entering or leaving the country. It essentially acts as an instruction to immigration authorities at all ports of entry and exit.

The judicious and efficient management of LOCs is crucial for the success of anti-evasion operations against individuals involved in serious economic offenses like customs duty evasion, GST fraud, and smuggling.

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The Shift to a Digital-Only System

The core of CBIC's instruction is the complete transition from a paper-based system to a digital one:

v  Operational Date: The Online LOC Portal has been operational since March 1, 2024.

v  Mandatory Use: All future requests for issuance, updating, or withdrawal of LOCs must now be processed exclusively through this online portal.

v  Abolition of Old Mechanism: This instruction officially discontinues the older mechanism where LOC requests were routed manually via letters or emails through the Directorate of Revenue Intelligence (DRI) or the Directorate General of GST Intelligence (DGGI) headquarters.

This centralized, technology-driven approach is expected to make the process quicker, more transparent, and ensure better data integrity across different enforcement wings.

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Implementation and Coordination Structure

To ensure seamless adoption and continuity, the CBIC has set up a structured implementation framework:

1. Designation-Based Credentials: Access to the portal is granted via designation-based login credentials for nodal officers. This ensures that access rights remain consistent regardless of officer transfers, promoting stability in the system.
2. Designated Coordinating Offices: Specific offices have been made responsible for user creation, coordination, and overall implementation for their respective field formations:

ü  Principal Director General, DRI: Overseeing all DRI formations.

ü  Principal Director General, DGGI: Overseeing all DGGI formations.

ü  Principal Chief Commissioner, CGST, Delhi Zone: Overseeing all CGST field formations.

ü  Chief Commissioner, Delhi Customs: Overseeing all Customs and Customs (Prev) field formations.

Field formations are required to coordinate directly with their assigned designated office to obtain procedural guidelines and activate their portal access. This streamlined communication is designed to resolve technical and operational difficulties efficiently.

The implementation of the Online LOC Portal is a significant step by the CBIC toward modernizing its enforcement infrastructure, aligning its processes with the government’s digital governance initiatives, and strengthening the fight against economic offenders who attempt to evade legal scrutiny by fleeing the country.