Two-Slab GST Proposal: What 5% and 18% Rates Could Mean for Homebuyers. Experts say the proposed GST shift to 5% and 18% could lower costs, but the real question is whether developers will pass on the benefits to homebuyers or retain higher margins. The Central government is reportedly planning to introduce a revamped GST structure with just two tax slabs — 5% and 18%. As per media reports, the new regime is expected to be rolled out by Diwali this year, replacing the current multi-slab system.
The existing GST system follows a multi-slab structure, with essential food items taxed at 0% and daily-use products at 5%. Standard goods attract 12%, electronics and services 18%, while luxury and sin goods are placed in the highest 28% slab.
In the proposed GST overhaul, the government aims to streamline the tax system into just two slabs—5% and 18%. A special higher rate of 40% will continue to apply to luxury and ‘sin’ goods, ensuring they remain heavily taxed.
The proposal for a two-slab GST structure comes shortly after Prime Minister Narendra Modi
In his Independence Day address, promised next-generation GST reforms. He described the move as a Diwali gift for the nation, aimed at simplifying the tax regime and boosting economic efficiency.
Two-Slab GST Proposal in real estate, GST on construction materials and services directly drives project costs and significantly impacts housing prices. Cement is taxed at 28%, steel at 18%, paints and varnishes at 28%, while ceramic tiles and sanitary ware attract 18%.
Additionally, services such as architectural design and project management are also charged 18%, all of which significantly impact the final cost borne by homebuyers.
Currently, under-construction residential properties attract 5% GST (1% for affordable housing), while ready-to-move-in homes with an occupancy certificate are exempt. With the proposed GST revamp, most goods and services will fall under the simplified 5% or 18% slabs, replacing the existing four-tier system of 5%, 12%, 18%, and 28%.
While this could reduce overall project costs, experts caution that the real impact on homebuyers will depend on whether developers choose to pass on the tax savings or retain them to safeguard their profit margins.
Industry leaders believe the proposed GST reforms could significantly benefit homebuyers and the real estate sector. Vikas Bhasin, MD of Saya Group, said that a reduction in GST on under-construction homes would make housing more affordable and uplift buyer sentiment.
Pradeep Aggarwal, founder and chairman of Signature Global (India), added that the two-slab system would simplify GST compliance, rationalise input costs, improve cash flows, and ultimately bring down home prices.
Lower Input Costs Under New GST Regime Could Enhance Housing Affordability
Currently, GST in real estate is charged at 1% on affordable housing (without input tax credit) and 5% on non-affordable housing. Affordable housing is classified as units up to 60 sq. m in metros and 90 sq. m in non-metros, priced within ₹45 lakh.
Among key inputs, cement is one of the most heavily taxed at 28%. If its GST rate is reduced to 18% under the proposed structure, developers could see a significant cut in construction costs, potentially improving housing affordability.
Experts remain cautious about the real impact of the proposed GST changes on homebuyers. Abhishek Kumar, founder and chief investment advisor of SahajMoney, noted that even if indirect taxes are reduced, developers may choose to retain the benefits to protect margins rather than lowering prices.
While affordable housing could see substantial gains if concessional tax treatment continues, luxury housing might face higher costs, especially if premium fittings and finishes are brought under the proposed 40% luxury slab.
GST Reforms Likely to Push Greater Formalisation in Property Transactions
Experts suggest that the proposed GST rate revision could trigger more than just cost reductions—it may drive a structural transformation in real estate transactions. By easing the overall tax burden, the reforms are expected to encourage higher compliance, curb cash-based dealings, and channel a larger share of property transactions through formal, transparent systems.
According to B. Srinivasan, director and founder of Shree Sidvin Investment Advisors, a 10%–20% reduction in overall taxation could make property more affordable, stimulate transactions, and push more dealings into the formal economy—giving a major boost to India’s traditionally cash-driven real estate sector.
Personal finance expert Anagh Pal also highlights that such reforms could have wide-ranging implications across real estate, taxation, insurance, and investments.