GST reforms to boost affordable housing; new rates effective September 22, 2025

At a time when India is grappling with challenges such as the trade tariff war with the United States of America (USA), the Modi government has introduced GST reforms aimed at easing one of the biggest concerns of its citizens: affordability. The new GST rates at 18% and 5% will be effective September 22, 2025.

The 56^th GST Council meeting was held on September 3, 2025 under the chairmanship of union finance and corporate affairs minister Nirmala Sitharaman. Addressing the media, Sitharaman mentioned that the government will address issues of compensation, ease of living, simplifying registration, return filing and refunds etc. with this tax simplification.

Modi announces implementation of next generation GST reforms from Sept 22

“Beginning at sunrise on September 22, 2025, the country will implement Next Generation GST reforms. This marks the beginning of a GST Bachat Utsav (savings festival) across India,” said, Prime Minister Narendra Modi while addressing the nation on September 21, 2025 via video conferencing.

He emphasised that this GST Bachat Utsav will enhance savings and make it easier for people to purchase their preferred items. These reforms will accelerate India’s growth story, simplify business operations, make investments more attractive, and ensure that every state becomes an equal partner in the race for development.

Underlining that the mantra of ‘Nagarik Devobhava’ is clearly reflected in the Next Generation GST reforms, the PM highlighted that people are actively working to pass on the benefits of GST reductions to customers. The Prime Minister highlighted that in many places, boards displaying price comparisons—before and after the reforms—are being prominently displayed.

The PM highlighted that when the income tax relief and GST reductions are combined, the decisions taken over the past year will result in savings exceeding Rs 2.5 lakh crore for the people of India.

Simplified GST structure- 18%, 5% and 40%

In a bid to further simplify the tax structure, the GST Council will replace the current four-tiered tax structure comprising of 28%, 18%, 12% and 5% to a user-friendly two-tiered tax structure- a standard rate of 18% and a merit rate of 5% for essential items. The government has also introduced a demerit rate of 40% on select luxury services and on sin goods.

“The government’s decision to lower GST rates and eliminate two slabs is a bold and strong measure — not just tinkering at the margins. This structural simplification underscores a commitment to transparency and ease of doing business. Coming ahead of the festive season, it is a bonanza for businesses and consumers alike, setting the stage for a surge in consumption and a meaningful boost to GDP. For the real estate sector, lower transaction costs and greater clarity will enhance affordability for homebuyers, lift demand across price segments, and add momentum to the broader growth cycle,” says Rohit Gera, managing director, Gera Developments.

According to Niranjan Hiranandani, chairman, Hiranandani and NAREDCO National, “By enhancing purchasing power, stimulating consumption, and helping contain inflation, this reform creates a multiplier effect that will propel India’s GDP growth beyond 8%. At a time of global uncertainty, such fiscal stimulation underscores the resilience of our domestic economy and strengthens confidence in India’s growth trajectory. Industry and consumers alike stand to benefit from this progressive step.”

Pramod Kathuria, founder & CEO, Easiloan said, “GST simplified model is a positive move towards making homes more affordable to Indian families. By demystifying cost complexities in the housing chain, it not only makes homes more affordable but also boosts buyer confidence—especially among first-time buyers. As a digital home loan company, we believe this change is a driver in facilitating smoother, faster credit access to aspiring buyers of all categories.”

GST reforms for the construction segment

The GST Council has cut the tax rate on cement, steel, sand, bricks, ceramics and sanitary ware from 28% to 18%.

Anshuman Magazine, chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE, said, “With cement, steel, and other inputs typically accounting for nearly 40–45% of total construction costs, this reduction will meaningfully lower project expenses. Developers can now pass on part of these savings to homebuyers, improving affordability and stimulating demand across segments. This timely reform comes as a festive season boost, creating the right conditions to spur homebuyer sentiment and drive purchase decisions.”

Will people really benefit big?

The key beneficiaries of this cut will directly be the affordable and mid-housing segment- especially the rural housing. “With cement accounting for nearly 10-12% of total construction costs in rural housing, this tax cut translates into a 0.8%–1.0% reduction in overall construction expenses. This provides some relief to low-income families and supports the broader Housing for All mission. The price benefit of Rs 26-28 per bag will be transferred to retail customer, without materially affecting profitability of cement manufacturers. The timing of this move is also strategic, aligning with the seasonal surge (post monsoon period) in the construction activity across rural and semi-urban regions,” said, Anupama Reddy, Vice President & Co-Group Head, ICRA.

However, Saya Group managing director Vikas Bhasin pointed that while the reduction of GST on cement is a positive step and will help ease construction costs, it is important to note that construction materials account for only about 25–30% of the overall cost of real estate projects, and cement is just one of the many inputs. Therefore, the impact of this move on end prices will be limited. “A more meaningful reform would have been a reduction in GST on under-construction properties, as that would have directly and significantly benefited homebuyers. We remain hopeful that the government will consider this important step in the near future,” he added.

Focus on innovation 

Also, with the costs aspect taken care of, focus on innovation will be taken more seriously in these categories. Annuj Goel, chairman, Goel Ganga Developments said, “This is a double bonanza for home buyers, with cheaper houses leading to lower GST. Savings can be directed to unique amenities and eco-friendly designs, making property ownership attractive and accessible.”

Select luxury services to attract 40% GST

While the affordable housing and mid-level housing will benefit from the GST rate cut, the luxury segment, which will see some impact because of the increased GST of 40% on luxury goods (tiles, fittings, fixtures etc.) used in the property from the currently charged 28%. For example, a Rs 18 crore raw flat luxury apartment in Gurgaon with luxury interiors including premium fittings and fixtures of Rs 3 crore presently costs the developer a GST of Rs 84 lakh (calculated at the current 28% GST on luxury goods). Thus, the total property value is around Rs 21.84 crore.  The same property at the proposed 40% GST will pay a tax of Rs 1.2 crore and so the property’s total value will be Rs 22.2 crore.

Impact on commercial realty

Aniruddha Mehta, chairman and managing director, Umiya Buildcon, said, “The rationalisation of GST under the proposed reforms marks a landmark moment for the real estate and construction industry. Beyond cost savings, GST 2.0 has the potential to catalyse growth and job creation across the broader ecosystem. As one of the country’s largest employment generators, real estate stands to benefit from improved liquidity and reinvestment opportunities, leading to more jobs in construction, allied industries and services. Moreover, a simplified and transparent tax regime instills greater confidence among long-term investors. It can drive capital inflows, support sustainable building practices, and ultimately contribute to India’s housing and infrastructure goals. That said, clarity on transitional provisions and tax credit flow will be essential to ensure a smooth shift and protect near-term working capital cycles.”

Housing.com POV

With GST slabs rationalised to 18% and 5%, the government has taken a decisive step towards simplifying taxation and improving the ease of doing business. The savings achieved by developers with the 10% reduction in GST if passed on to the end buyer will impact the segment positively. However, the real test lies in seeing if this saving is actually passed on to the homebuyer. It should also be noted that since many developers are still bound by old raw material contracts, it may take time for the changes to reflect. Finally, while real estate as an asset class is preferred, the segment has experienced slowdown nationwide. Passing on this saving to the homebuyers will help propel the segment, a move which is more important during the festival season when home bookings surge.

FAQs