A Detailed Look at How New GST Rates Influence Home Construction Cost

When you plan to build a home, there are many elements that sit inside your budget such as cement, steel, bricks, tiles, fittings, and labour. Together, these elements constitute your home construction cost, and even a small change in tax or price at any stage can shift the final figure. One of the key drivers behind these costs is the tax structure that applies to every major construction material.

Since 2017, the Goods and Services Tax (GST) has been the main indirect tax system in India. It replaced multiple earlier taxes and created a common framework. In the early years, the GST rates on core building inputs such as cement were relatively high, which kept construction costs firm. Over time, there has been strong demand for relief, especially from homebuilders and the housing sector.

The latest round of GST reforms has now changed this picture. The rates on several key materials have been reduced, and there is clearer separation between lower and higher slabs. This has already started to lower input costs for home projects and has important implications for anyone planning a new build or evaluating a project budget.

Changes Brought About in the Latest GST Reforms

At its 56th meeting, the GST Council approved a revised structure that directly affects the housing and construction sector. The most important shift is the move to a two-slab framework of 5% and 18% for many key items. Within this, the GST rates on construction materials have been adjusted to give some relief to homebuilders and developers.

For major inputs, the changes include:

• A reduction in the GST on cement from the earlier high slab down to 18%.

• A reduction in GST on marble and granite blocks to 5%.

• Lower rates for fly ash bricks and boards, which also support walling and structural work.

• Recognition of the role of bricks and blocks in basic construction, with a more favourable GST on Bricks under the updated structure.

Alongside material changes, the framework for property taxation has been left stable. The property GST rate on affordable housing remains at 1%. For an under construction property, the rate continues at 5%, and completed residential units remain exempt from GST. This stability helps buyers avoid confusion and keeps purchase decisions steady, while the material-side changes work in the background to reduce project cost.

The overall effect is that the GST on construction material is now better aligned with the realities of homebuilding. The structural tax load on key inputs has reduced, while the headline rates on different property segments remain predictable.

How Lower GST Rates on Construction Materials Reduce Real Costs

Because materials represent a significant share of every project’s budget, lowering their tax rate has a direct impact on home construction cost. Industry analysis suggests that construction materials can account for roughly 50–60% of the total cost of a typical home build. When the tax on the heaviest item in that basket—cement—is reduced by several percentage points, the cumulative saving is meaningful.

With the reduction in GST on cement, overall construction costs are estimated to fall by around 3–3.5% in many projects. The revised rates on marble, granite, and similar finishes can add another 0.5–1% of savings, depending on the material mix and project type. Taken together, the drop in tax on these inputs can bring down total construction cost by roughly 3.5–4.5% for larger projects that use these materials extensively.

In simple terms, the revised GST rates on construction materials pull down the base cost of building, even though the final savings for each homeowner depend on how the project is structured and how materials are sourced.

Impact of Specific Material Cuts

GST on Cement

Cement is used at almost every step of the structural and finishing journey, from the foundation and columns to plastering and flooring. Under the earlier regime, the high slab for GST on cement kept this essential input relatively costly. With the move to 18%, the tax burden on a single bag falls by a clear margin, and this effect multiplies when a project uses hundreds or thousands of bags.

For example, if a bag of cement is priced at a certain base rate, the reduction in GST leads to a lower tax amount on each unit. When scaled up to the typical usage of a standalone home or a housing block, this difference results in a noticeable reduction in home construction cost.

GST on marble and stone

Natural stone, marble, and granite are widely used in flooring, staircases, kitchen platforms, and premium finishes. The revised GST on marble and granite, now at 5% for relevant blocks, makes these finishes more accessible from a tax perspective. For mid-range and premium housing, where these materials are often part of the design brief, the lower rate provides measurable savings.

Even when marble and granite form a smaller share of the total budget compared to cement, the reduced rate helps offset some of the cost pressure on the finishing phase.

GST on bricks

Bricks are a fundamental construction material, and their GST treatment plays a role in overall project budgeting. Under the updated GST structure, the tax position on bricks remains largely unchanged, with one specific category seeing a revision.

Sand lime bricks are now placed in the 5% slab, moving down from the earlier 12% rate. For all other brick types, the existing composition scheme continues to apply. This adjustment creates selective relief for sand lime bricks while keeping the broader framework of GST on bricks steady for the types most commonly used in home construction. The change fits into the overall rationalised rate structure, where specific inputs receive targeted adjustments based on their classification.

GST on Contract Structure: Composite Contract vs Self-Procurement

While the revised rates on materials are clearly helpful, the way a project is contracted also plays a crucial role in determining the final home construction cost. Here, the distinction between a composite contract and a self-procurement model becomes important.

Under a composite contract, the builder or contractor supplies both materials and labour as a single bundled service. Under the latest GST framework, such works contract services for residential construction are generally taxed at 18%.

In contrast, a self-procurement model separates materials and labour. The owner buys the construction material directly and hires labour-only services for execution. Under current rules, pure labour contracts for the construction of a single residential house for personal use can fall under an exempt category. In this case, the project benefits fully from the reduced GST on construction Material, while avoiding GST on labour.

This means that the structure of the contract is almost as important as the rate on individual materials. A project can realise the full benefits of the new GST rates on construction materials when the owner or developer manages sourcing and labour in a way that fits within the more favourable blocks of the current framework. This is a huge win for individual home builders.

Impact of the Latest GST Reforms Across Segments of Housing

The impact of the reforms is not uniform across all types of housing. Different segments experience the changes in different ways.

Affordable Housing

Projects qualifying as affordable housing continue to enjoy a concessional property GST rate of 1% on eligible units. With material-side relief now in place, these projects see a dual benefit: property taxation remains low and stable, and the cost of key inputs such as cement, bricks, and stone is lower than before. This improves the basic economics of budget housing and offers more room for value within the same ticket size.

Under-Construction Property

For an under construction property, the GST framework continues with a 5% rate on the property value. There is no change in this figure under the latest reform. However, the reduced tax on materials used in such projects works within the developer’s cost structure. Where developers decide to share the benefit, either through pricing or specification decisions, buyers can indirectly benefit from the lower tax burden on inputs.

Premium Housing

Mid-range and premium homes often make more extensive use of stone, high-quality finishes, and branded materials. For this segment, the revised GST on marble and similar materials makes a direct difference to the cost of visible finishes. Combined with lower GST on cement and better terms on bricks and boards, the material-side relief supports more cost-efficient specification decisions without compromising on core quality.

Developers’ Advantage

From a developer's standpoint, the reduction in GST on construction material and related items improves the viability of new projects. With lower material-led cost pressure, margin visibility improves, especially in affordable housing and mid-income projects where price points are sensitive. The unchanged headline property GST rate structure helps maintain clarity for customers, while the back-end cost relief supports more stable project planning.

To Conclude

The recent GST reforms have moved from discussion to implementation, and their effect on home construction cost is now measurable. The outcome is not a dramatic shift in pricing, but a steady and tangible reduction in input-based costs. For a typical residential house, this can mean savings in the range of a few percentage points of the project budget. For larger projects, the percentage benefit can be higher, especially where material usage is intensive and contract structures are planned to fit within the most favourable parts of the current regime.