India’s recent GST reforms give a boost to the real estate sector

India’s recent goods and services tax (GST) reforms has been simplified into three core slabs: 0%, 5%, and 18%. The cascading impact will reduce construction costs significantly, creating notable implications for developers, homebuyers, and investors.

The rationalisation of GST rates on key construction inputs such as cement, sand and aggregates, tiles, marble, granite, paints, and finishes has brought greater uniformity. With reduced rates on critical materials, developers can ease working capital pressures, improve margins, and enhance liquidity, thereby accelerating project completion. Especially in the affordable housing segment, lower construction costs combined with low GST rates on property purchases and decreased repo rates translate into more competitive pricing and improved affordability for homebuyers, according to Savills survey.

Construction materials like cement, steel, bricks, tiles, and concrete account for over 50 per cent of real estate project costs. The price and availability of construction materials will impact timelines, expenses, and affordability of projects. The September 2025 GST reforms have cut taxes on key materials, aiming to reduce construction costs. Cement and ready-mix concrete now come under 18% GST, down from 28%. Bricks and tiles have fallen sharply to 5% from 18%, and paints and varnishes are now at 18%, down from 28%

These changes will bring down overall construction costs going forward. However, GST on rental lease for commercial, manufacturing, and warehousing properties remains at 18%. For under construction residential purchases, GST is 1% on affordable housing and 5% on other housing, while ready-to-move-in residential properties with a completion certificate attract no GST.

The reduction in GST on key construction input costs under the modified GST structure is expected to ease project budgets marginally across real estate segments. GST savings on residential construction costs are likely to decline by INR 120-155 per sq. ft. for affordable housing, INR 152-186 per sq. ft. for the mid segment and 199-220 per sq. ft. for the luxury segment making homes more affordable and enhancing demand, particularly in the affordable and mid-end segments.

The office segment is also expected to benefit, with GST on construction costs dropping by Rs134-177 per sq. ft., thereby improving investor interest. In the industrial space, manufacturing facilities will benefit with construction savings of Rs95-112 per sq. ft., improving capex efficiency and encouraging capacity additions. Similarly, warehousing projects are likely to gain Rs58-67 per sq. ft. of overall reduction in GST on construction costs, strengthening logistics and e-commerce growth in the country.

In terms of overall reduction, construction costs across asset classes are expected to decline in the range of 2.5%-4.4%. Mid and affordable housing segments are likely to see reductions in the range of 4.3%-4.4%, whereas the luxury residential segment will benefit slightly less at 3.7%. This expected reduction in construction costs is likely to be passed on to homebuyers. Construction costs for general manufacturing are projected to decline by 2.5%, while Grade-A warehousing will see reduction at 2.6%. Grade-A offices are expected to witness a decline of around 3.0%.

The office, industrial, and warehousing sectors are likely to benefit from reduced construction costs, as lower project expenses improve investment returns and enhance the attractiveness. Additionally, cost reductions may unlock opportunities in emerging segments such as student housing, senior living, and life sciences facilities. However, the transition period presents both opportunities and challenges. Success in navigating these changes will depend on stakeholders’ ability to adapt to new compliance requirements, interpret evolving regulations correctly and align their strategies with the reformed tax structure.

I have capital gains arising out of sale of immovable property. Is there any monetary limit for claiming exemption while investing in bonds? Chandra Prakash, Sharjah.

Yes. Bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) have been specified. These are redeemable after five years and must not be sold before the lapse of five years from the date of sale of the house property.

At the same time, you cannot claim this investment under any other deduction. You are allowed six months to invest in these bonds and in order to be able to claim this exemption, you will have to invest before the income tax return filing date.

Can an Indian entity having office in Abu Dhabi acquire immovable property outside India? Are there restrictions in this regard? Krishna Navoor, Dubai.

An authorised dealer bank may allow an Indian entity having an overseas office to acquire immovable property outside India for the business and residential purposes of its staff, provided total remittances do not exceed the following limits as laid down for initial and recurring expenses, respectively (a) 15% of the average annual sales/income or turnover of the Indian entity during the last two financial years or up to 25% of the net worth, whichever is higher (b) 10% of the average annual sales/income or turnover during the last two financial years.