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.