GST 2.0: Two-Slab Tax Plan Could Cut Home Prices by Diwali 2025

GST 2.0: Two-Slab Tax Plan Could Cut Home Prices by Diwali 2025 Aug, 25 2025

What GST 2.0 could change for homebuyers and developers

Cement still carries 28% GST. Paints too. That tax load gets baked into every wall and floor of a new apartment. If those items move down to 18% under the proposed two-slab system, new homes could get meaningfully cheaper—right in time for the 2025 festive buying window.

Here’s the core idea: the government is working on GST 2.0 with two slabs—5% and 18%—targeted for rollout by Diwali 2025. Today, construction materials face a patchwork of rates. Cement and paints sit at 28%, while steel, tiles, and sanitary ware are at 18%. Developers building homes at 1% (affordable housing) or 5% (other residential) cannot claim input tax credit (the 2019 regime removed ITC for residential projects), so the GST paid on materials becomes a cost and pushes up prices.

Industry estimates suggest that this tax structure adds roughly 5–6% to a home’s final price. That’s why builders say a rate cut on materials could move the needle. If cement and paints drop from 28% to 18%, the blended material tax falls, reducing the embedded cost that buyers ultimately pay.

How does that translate to real money? Take a 1,000 sq ft apartment priced at ₹60 lakh. A 5–6% cost relief can mean ₹3–3.5 lakh in savings—often the difference between stretching your budget and staying put. In affordable housing, even ₹500–₹800 per sq ft lower pricing adds up fast: ₹5–₹8 lakh on a 1,000 sq ft home.

Developers see a few wins too. Two slabs reduce classification disputes, cut compliance work, and make vendor negotiations simpler. Fewer high-rate inputs mean less cash blocked in taxes that can’t be claimed back. Better cash flow improves project timelines and lowers financing costs. That’s important when interest costs and construction delays can sink margins.

Several builders are already mapping the impact. If cement and paint step down to 18%, steel stays at 18%, and tiles/sanitary ware remain at 18%, the average tax on a typical material basket declines. Materials often make up about half of the construction cost (varies by project). With land outside GST and ITC blocked for residential, a cut in input tax goes straight to the bottom line—and should flow to buyers, especially in price-sensitive projects.

The affordable housing segment stands to gain the most. Current GST on under-construction affordable homes is 1% without ITC. Eligibility typically means a value cap (₹45 lakh) and size limits (up to 60 sq m carpet area in metro cities and 90 sq m in non-metros, as per the 2019 framework). Lower material tax could help more projects meet those price caps and expand supply where demand is strongest—Tier-2 and Tier-3 cities, and suburban corridors around metros.

Expect timing to matter. The festive season is when many buyers sign. If notifications land in time for Diwali 2025, we could see bookings bunch up. Tier-2 markets—already seeing interest in second homes and plotted developments—could be first to pop because ticket sizes are lower and price drops translate faster into monthly EMI comfort.

There’s also the buyer psychology angle. When people see costs drop by even 5%, fence-sitters tend to stop waiting. Real estate purchases are often decided at the margin—₹2–₹4 lakh can sway a decision as much as a small EMI change. If mortgage rates also ease into 2025, the effect compounds. If rates stay flat, tax-led price cuts still help entry-level buyers most.

One caveat: stamp duty and registration charges are outside GST and won’t change with GST 2.0. Ready-to-move-in homes (where completion certificates are issued) don’t attract GST today and that won’t change either. So the gain is focused on under-construction housing and the construction ecosystem.

Will all savings reach buyers? That’s the plan. India’s anti-profiteering oversight now sits with the Competition Commission of India, which can review whether tax cuts are passed through. Most large developers will likely reprice or offer equivalent benefits through limited-period schemes. In affordable housing, where price points are capped, the pass-through tends to be more direct.

For building materials, the picture is mixed. Cement and paint companies may see a near-term price reset if rates drop, but demand could pick up as more projects become financially viable. Steel and ceramic makers, already at 18%, won’t see a rate cut but could still benefit from higher volumes if housing launches rise.

Buyers should remember how the current GST setup works for homes:

  • Under-construction residential: 1% GST for affordable housing; 5% for other residential—both without ITC.
  • Ready-to-move-in (completion certificate issued): No GST; stamp duty and registration still apply.
  • Commercial/retail: Generally higher rates with ITC allowed, different economics from residential.

Because residential projects can’t claim ITC, high input rates hurt. Lowering those rates is the most direct way to make under-construction homes cheaper without changing the 1%/5% headline rates. That’s why developers have been asking for rationalization since 2019.

The road ahead: timeline, open questions, and practical tips

The road ahead: timeline, open questions, and practical tips

What has been announced so far is a policy direction—two slabs at 5% and 18% aimed for Diwali 2025. The details will be shaped by the GST Council, where the Union and states decide together. Expect a few steps: draft proposals, Council debate on which items sit in each slab, revenue-neutral calculations, and tech changes on GSTN. Businesses usually need at least one quarter to rework contracts and ERP systems after final notifications.

States will watch revenue closely. The 28% slab today covers items like cement and paints, which are big revenue contributors. Moving them down to 18% means a short-term hit unless higher collections from more activity balance it out. To keep the math neutral, some items now at 12% could jump to 18%. That’s manageable for construction because many of those inputs already sit at 18%, but the final list matters.

Two policy questions to track:

  • Will residential projects continue without ITC? If yes, the key relief still comes from lower input tax. If the Council restores partial ITC in some form, the price impact could be larger, but that’s a big change and not yet on the table.
  • Will affordable housing thresholds be updated? If price caps rise with market realities, more buyers can qualify for the 1% rate, boosting supply where demand is strongest.

What should homebuyers do now?

  • Ask builders how they plan to pass on savings if input taxes fall—through base price cuts, upgrades, or payment plan benefits.
  • If you’re eyeing an under-construction home, check if your agreement has a clause on tax changes and price adjustments.
  • Don’t expect stamp duty to change with GST 2.0. Budget for it as before.
  • Watch the GST Council calendar through 2025. Real impact starts after official notifications and effective dates.

What should developers prepare for?

  • Re-price project budgets under both scenarios—status quo and two-slab GST—so you can act fast once rates are notified.
  • Rework vendor contracts and BOQs with conditional pricing tied to GST changes.
  • Update HSN classification, ERP, and invoice templates ahead of time.
  • Plan targeted offers for affordable and first-time buyer segments where small price cuts trigger quick sales.

A quick way to visualize the potential savings: in a mid-income project priced at ₹5,500 per sq ft, a ₹500–₹800 per sq ft reduction from lower input taxes trims 9–15% off the construction component (not the land), which often converts to a 4–7% cut in the all-in ticket price. In markets where affordability is stretched—think peripheral micro-markets around NCR, MMR, Bengaluru, Pune—that’s meaningful.

If the rollout stays on schedule, the next festive season could see a cleaner tax sheet, sharper price points, and faster launches. If it slips, expect a staggered pass-through as developers adjust procurement and inventory already bought at higher tax rates. Either way, the direction is clear: simpler slabs, lower friction, and a real shot at making new homes more reachable for first-time buyers.