by Ashirwad Jain
Buying your first home is a dream, but it often comes with a bundle of stress, hidden charges, confusing paperwork, and taxes that don’t always make sense. Among these, GST (Goods and Services Tax) has always been a big question mark for home buyers. But in a significant move, the 56th GST Council Meeting, held on September 3, 2025, announced GST 2.0 reforms, set to take effect from September 22, 2025.
The purpose of these reforms is to simplify the tax structure, reduce the burden of cascading taxes, and give a boost to key sectors—especially real estate, which currently accounts for around 7% of India’s GDP. For the real estate sector, the reforms bring a sharp reduction in GST rates on key construction materials. This is expected to reduce project costs, which could make homes more affordable—especially for first-time buyers—while helping address the country’s significant urban housing shortage of nearly 1 crore units. GST 2.0 is expected to reshape the sector and bring noticeable effects for new home buyers.
Understanding GST 2.0 Reforms in Real Estate
GST 2.0 restructures the existing four tax slabs (5%, 12%, 18%, and 28%) into three simplified slabs—5%, 18%, and 40% (for luxury and sin goods). The removal of the 12% and 28% slabs aims to reduce complexity and eliminate disputes.
For real estate, the most notable benefit is the sharp drop in GST on building materials. Cement, a major input, will now be taxed at 18% instead of 28%. Similarly, granite blocks, marble/travertine, bricks, tiles, and stone fittings will now fall under the 5% slab instead of 12%. Metals like steel will be taxed at 18%, which also brings down overall construction costs that were previously inflating project prices.
According to a CRISIL Intelligence report, these changes could reduce total construction costs by 3.5% to 4.5%, with cement alone accounting for 3% to 3.5% of that. Earlier, high GST rates on materials were making the construction process costlier, leading to a 10-15% increase in home prices. Now, with developers able to claim higher input tax credits, their margins improve, and more projects can be viably funded. Experts anticipate a 0.5% to 5% reduction in prices in the mid and affordable housing segments. Some markets may even see 5-8% price corrections, especially those that were previously overheated.
The Difference GST 2.0 Makes to Real Estate
In contrast to the introduction of GST in 2017—which disrupted the existing tax structure and drove taxes in the real estate sector to new highs through an inverted duty system—GST 2.0 marks a much-needed shift in approach. This reform reflects the government’s intent to ease the burden on essential commodities and bring forward momentum to key sectors.
Over the years, construction costs had surged by nearly 20%, largely due to steep taxes on raw materials like cement (28%) and bricks (18%). With the launch of GST 2.0, the new streamlined tax slabs of 5% and 18% are designed to correct these imbalances. This is expected to generate tax savings of around 3% to 5%, making affordable housing more feasible and potentially boosting overall consumption.
When it comes to residential properties, the reduction in construction costs—along with improved transparency—is likely to lead to higher demand. However, in contrast, commercial real estate may face a downside, especially with the loss of Input Tax Credit (ITC) on leasing, which could affect margins and pricing in that segment.
Impacts on First-Time Home Buyers
These reforms are a big win for first-time home buyers, many of whom are young professionals or middle-class families. Lower construction costs could translate into savings of ₹1–2 lakh on a ₹50 lakh home, which is significant—especially as interest rates are rising, and monthly EMIs are becoming heavier.
This is also a major boost for the affordable housing segment, helping to address the urban housing shortage and bring home ownership rates in urban areas closer to rural India’s 70% level, compared to the current 60% in urban areas.
That said, the actual benefits will depend on how much of these savings are passed on by developers. Market competition, along with anti-profiteering clauses, will play a role in keeping prices in check. Immediate price drops may mainly be seen in newly launched projects that fall under the updated tax regime.
In the long run, GST 2.0 promises greater transparency, reduced hidden taxes, and better financial planning for developers—all of which can create a more stable, buyer-friendly real estate market.
Benefits for Home Buyers
- Cost Savings: Upfront savings of 3-5% on home prices will directly impact first-time buyer budgets.
- Affordability Boost: Targets mid-segment homes, ensuring that buyers can access any PMAY-linked subsidies and reducing EMIs.
- Simplified Pricing: The congruent slabs will only make the quotes clearer for buyers. For under-construction projects, there should be fewer surprises.
- Market Stimulation: Increased supply in affordable housing could lead to added choices and competitive pricing.
Disadvantages for Home Buyers
- Delayed Benefits: Developments could hold margins upfront, delaying the higher margin, expect 6-12 months if it’s ultimately favourable for a lot of consumers.
- Luxury Product Risks: A 40% slab or increase in luxury products might indirectly cause the price of a newer premium home to rise, but irrelevant in the case of most first-time buyers.
- Market Uncertainty: 5-8% price corrections in the newly built residential housing market have the potential of causing uncertainty for ongoing projects or existing values temporarily.
Conclusion
GST 2.0 is a transformative reform, reducing barriers to homeownership and rejuvenating the real estate sector. For new buyers, the benefits outweigh the costs, and are an opportunity to access the category that anyone can buy into. As the rollout progresses, we will have to monitor the actions of developers. With that said, if Indian citizens can now access their dream of housing, this might be the festive boost the sector needs.
FAQs on GST 2.0 for Home Buyers
Q1. What is the GST rate for first-time home buyers in 2025?
 Affordable housing projects typically attract a lower GST rate, while other projects may fall under 5%.
Q2. Does GST apply to ready-to-move homes?
 No. Ready-to-move homes are exempt from GST, as they are considered completed projects.
Q3. How much GST is charged on affordable housing projects?
 As per GST 2.0, affordable housing continues to enjoy the lowest tax slab to encourage more
