Following the recent GST rate cuts for key construction materials, Sourcing Hardware spoke with Vivek Rathi, National Director–Research at Knight Frank India, to understand how the reforms are affecting project viability, housing affordability, and the broader real estate ecosystem.
Rathi explains that while the tax reductions are a welcome move, especially for affordable and mid-income housing, the continued absence of input tax credit (ITC) limits the overall impact on project economics and the revival of stalled projects.
Following the recent GST rate cuts, what impact are you observing on project viability and housing affordability?
Recent GST reforms, especially the reduction of GST on materials such as cement from 28% to 18%, have led to a 3–4% decline in construction costs. This has improved project
viability and marginally enhanced affordability, particularly in the affordable and mid-income housing segments.
How do Indian GST rates on construction materials compare with those in other emerging markets?
India’s revised GST rates—now 18% for cement and 5% for bricks and marble—are broadly competitive with those in other emerging markets such as Indonesia, Vietnam, and Thailand, which levy VAT or GST in the 7–12% range. However, many of these countries lack a unified input credit framework, which gives India a structural advantage once ITC mechanisms are streamlined.
Do you believe GST rationalisation could significantly revive stalled or delayed real estate projects?
While GST rationalisation is directionally positive, the overall benefit amounts to roughly
1% of the final product’s value. This reduction is too modest to meaningfully address the
deeper issues affecting stalled or delayed real estate projects, and therefore unlikely to
revive them in a significant way.
From a policy perspective, what should the government prioritise—input tax credit simplification or rate reduction?
Both are essential. Immediate rate reduction provides short-term relief by improving affordability and stimulating demand. However, restoring and simplifying ITC for all residential construction projects remains crucial for sustainable cost management and
long-term industry health.
Are your clients (developers/investors) actively lobbying or advocating for GST changes?
Yes. Developers and investors are actively advocating for additional GST reforms. While
the industry has welcomed recent rate cuts, there remains a strong push for the restoration of ITC in residential construction, rationalised rates across input materials, and greater clarity in the classification between affordable and luxury housing.
What role can state governments play in advocating for lower GST rates on construction inputs?
State governments can play a pivotal role by representing regional priorities before the GST Council, advocating for lower rates on construction materials, and introducing complementary measures such as stamp duty reductions or concessions for affordable
housing. These steps can significantly enhance sector competitiveness and affordability.
Do you think GST on building materials should be treated differently for affordable vs luxury housing projects?
A differentiated GST structure is desirable to promote affordable housing while maintaining higher rates for luxury projects to balance fiscal considerations. India already follows such a model—with 1% GST on affordable homes and 5% on other residential properties—and further fine-tuning could strengthen affordability efforts and align policy with social objectives.
How has the lack of input tax credit in residential construction impacted overall cost structures post-GST implementation?
The absence of full ITC has inflated effective construction costs, compressed developer
margins, and constrained housing affordability. Although recent reforms reducing input GST rates provide partial relief, the lack of ITC continues to be a significant bottleneck—particularly for developers in the high-volume affordable housing segment.
If the government were to reduce GST on materials further, what complementary reforms should accompany it for maximum impact?
Complementary reforms should include streamlining the ITC process to ensure benefit pass-through to homebuyers, instituting single-window project approvals, facilitating faster credit disbursal, and harmonising stamp duty structures across states. Together, these measures would maximise the positive impact of GST rate cuts on the real estate sector.
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