The Goods and Services Tax (GST) Council has approved a significant restructuring of India’s indirect tax system, moving from a four-slab structure to a simplified two-slab model of 5% and 18%, while creating a new 40% bracket for luxury and sin goods. The decision, finalised at the 56th Council meeting after a prolonged discussion, will come into effect on September 22, coinciding with the Navaratri festival season.
The reform, cleared at the 56th GST Council meeting after a marathon 10.5-hour discussion, was backed unanimously by all states. The new rates will come into effect from September 22, coinciding with the start of Navaratri.
Prime Minister Narendra Modi described the decision as an economic reform that strengthens the economy and benefits multiple segments including farmers, micro, small and medium enterprises, traders, and the middle class. Finance Minister Nirmala Sitharaman explained that the overhaul addressed inverted duty structures, reduced compliance burdens, and created greater predictability for businesses operating under GST. The move received unanimous backing from states, highlighting its political and economic significance.
What Gets Cheaper?
- Several essential goods and services will now attract significantly lower taxes, easing household budgets and reducing costs across sectors.
- Insurance Relief: Individual life and health insurance policies have been exempted from GST, a major relief for middle-class families.
- Food Essentials: Paneer, paratha, roti, khakra, and chena are now tax-free, while butter, ghee, cheese, biscuits, jams, confectionery, and cereals will attract only 5%, down from 12–18%.
- Agriculture Support: Fertiliser inputs such as sulphuric acid and ammonia, along with biopesticides and farm machinery including tractors and threshers, will now be taxed at 5%.
- Automobiles: Small cars (petrol engines under 1200cc and diesel under 1500cc), small hybrids, and motorcycles up to 350cc move to 18% GST from 28%. Electric vehicles remain at 5%.
- Everyday Items: Shampoo, soaps, toothpaste, toothbrushes, hair oil, talcum powder, bicycles, feeding bottles, utensils, and bamboo furniture will now be in the 5% slab.
- Construction Boost: Cement, previously taxed at 28%, has been cut to 18%. Auto components too move down to 18%.
What Gets Costlier?
At the same time, the GST Council has raised taxes sharply on luxury and sin goods, placing them in a new 40% slab.
- Soft drinks, colas, carbonated beverages, and flavoured drinks with added sugar or sweeteners will face 40% GST, up from 28%.
- Energy and caffeinated drinks are also taxed at 40%.
- Large cars (petrol engines above 1200cc or diesel above 1500cc, over 4,000mm in length), high-capacity motorcycles, yachts, and personal-use aircraft fall in the 40% category.
- Pan masala, gutkha, cigarettes, and other tobacco products will continue at 28% plus compensation cess until outstanding dues are cleared, after which they will also shift to 40%.
Cement Rate Cut and its Impact
The GST reduction on cement is being viewed as one of the most consequential decisions of the restructuring exercise. Cement, which had been taxed at the highest 28% slab since 2017, was historically treated in the same category as luxury goods despite being a core construction input. Industry associations such as the National Real Estate Development Council (NAREDCO) and the Confederation of Real Estate Developers’ Associations of India (CREDAI) had repeatedly petitioned for rationalisation.
Mr. Neeraj Akhoury, President, Cement Manufacturers’ Association and Managing Director, Shree Cement Limited has welcomed the rate cut. He says, “The Cement Manufacturers’ Association (CMA) welcomes the Government of India’s announcement reducing the GST rate on Cement from 28% to 18% on a long-standing request of the Cement Industry. The Cement Industry considers it a progressive step towards simplifying the tax structure.
For a long time, Cement has been taxed at one of the highest rates among essential building materials compared to sectors such as steel and several other construction input materials. Lowering the rate to 18% corrects this long standing anomaly and ensures parity with other core materials.
Moreover, a reduction in GST stands to enhance the competitiveness of the Indian Cement Industry by creating a fair game with global peers. Given that Cement is a foundational input material for infrastructure and housing, treating it more fairly in the tax structure is consistent with global practices and will likely boost consumption of this key building material towards augmenting considerable infrastructure, including affordable housing.”
NARDECO Opinion
Mr. Niranjan Hiranandani, Chairman of Hiranandani Group and NAREDCO National, described the reduction of GST on cement from 28% to 18% as a landmark reform for the real estate and infrastructure sectors. According to him, the lower tax will ease input costs, improve project viability, and accelerate infrastructure development across the country. He noted that affordable housing is set to benefit the most, since reduced construction expenses can make homes more accessible and support the government’s Housing for All vision. Hiranandani also viewed the rationalisation as both a festive boost for consumers and a strategic step for the economy.
Mr. G Hari Babu, national President of NAREDCO, highlighted the timing of the decision as particularly significant. With the announcement coming during the festive season, he assessed that it will lift consumer sentiment and generate fresh demand in the housing market. He considered the move a strong economic booster that will support homebuyers, encourage developers, and create long-term momentum for the sector as well as the broader economy.
Cement typically accounts for 15–20% of the direct construction cost in residential, commercial, and infrastructure projects. With a 10 percentage-point reduction in GST, developers are expected to realise notable savings in procurement. This change is particularly significant in affordable housing, where margins are thin and pricing is highly sensitive to material costs. Developers implementing projects under the Pradhan Mantri Awas Yojana and other state housing schemes may now be able to reduce unit prices, enhancing access for first-time buyers.
The infrastructure sector is also expected to benefit. Large-scale public works such as highways, metro corridors, and industrial parks consume cement in bulk quantities. Contractors working on competitive tenders for these projects often face strict cost ceilings. A lower GST burden on cement procurement allows them greater flexibility in bidding and execution.
However, the actual benefit to homebuyers will depend on how developers pass on the savings. Consumer groups have called for oversight to ensure that the reduction in cement costs translates into lower home prices rather than being absorbed entirely as additional developer margins. The government has indicated it will monitor implementation closely, particularly in affordable housing projects.
Industry Experts Opinion
Mr. Jetaish Gupta – Founder & Director, Adore Group, welcomed the rate cut, noting that it would ease cost pressures for developers while improving affordability for buyers.“Today’s announcement to slash GST on cement from 28% to 18% is an enabling gesture for real estate. As one of the largest input costs is reduced, the reform enables builders to deliver affordable homes and expedite project timelines. For homebuyers, the tiered system of GST will ensure price points are more affordable, and India’s housing dream will get a new lease of life.”
Mr. L.C. Mittal – Director, Motia Builders Group, emphasized that rationalizing GST slabs for construction inputs would shift focus towards better quality and innovation. “With the GST slab being rationalized for construction materials, developers will focus on innovation and value rather than just costs. The primary beneficiaries will be affordable and mid-segment housing categories, ensuring quality housing is accessible to families in urban and semi-urban areas.”
Mr. Annuj Goel – Chairman, Goel Ganga Developments, said the reform delivers benefits both to homebuyers and builders, supporting affordable housing. “This is a double bonanza for home buyers, with cheaper houses leading to lower GST. For builders and construction companies, this landmark reform enables effective construction and affordable housing. Savings can be directed to unique amenities and eco-friendly designs, making property ownership attractive and accessible.”
Mr. Manoj Goyal – Director, Forteasia Realty Pvt. Ltd. highlighted that the simplified regime would restore transparency and strengthen trust across the sector. “With a simplified GST regime, the sector will enjoy more transparency and renewed trust among stakeholders. The lower tax on cement reduces construction costs, raises supply, and revives demand, offering fresh hope to builders and buyers alike.”
Mr. Ashish Agarwal – Director, AU Real Estate, called the move to rationalize GST slabs a crucial development that brings clarity and simplicity to real estate taxation. “The move to rationalize GST slabs is a crucial development that brings much-needed clarity and simplicity to the real estate taxation system. By easing the overall tax burden on housing, it is likely to boost buyer confidence and encourage quicker, more confident purchasing decisions. For developers, having a more predictable and streamlined tax structure means fewer hurdles and smoother progress on projects. This change is set to inject new energy into the real estate sector, paving the way for steady growth and reinforcing India’s stature as a vibrant housing market.”
Mr. Parvinder Singh – CEO, Trident Realty, described the streamlined GST structure as an impactful reform that improves cost efficiency and strengthens affordability. “The shift to a streamlined GST structure is an impactful reform for India’s real estate sector. With rates on key materials like cement now lower, construction becomes more cost-efficient, giving developers room to build smarter with greater flexibility in pricing. This simplification enhances cost transparency, reduces tax inefficiencies, and offers a more stable environment for long-term planning. For homebuyers, the impact is twofold with greater affordability, and a noticeable uplift in overall value. These savings give us room to do more – invest in smarter layouts, sustainable materials, and the kind of modern conveniences today’s buyers expect. By easing the overall tax load, this reform is expected to make quality housing more accessible while energising demand across key urban markets.”
Mr. Rohit Gera – Managing Director, Gera Developments called the government’s decision to lower GST rates and simplify slabs a strong structural measure that improves transparency and ease of doing business. “The government’s decision to lower GST rates and eliminate two slabs is a bold and strong measure — not just tinkering at the margins. This structural simplification underscores a commitment to transparency and ease of doing business. Coming ahead of the festive season, it is a bonanza for businesses and consumers alike, setting the stage for a surge in consumption and a meaningful boost to GDP. For the real estate sector, lower transaction costs and greater clarity will enhance affordability for homebuyers, lift demand across price segments, and add momentum to the broader growth cycle.”
Mr. Deep Vadodaria, Managing Director, Nila Spaces Limited, a progressive Real-Estate believes “The recent GST slab rationalization marks a pivotal shift for the real estate sector. Affordable housing is set to gain significantly, as reduced tax outflows will make home ownership more accessible for first-time buyers and middle-income families. More importantly, these changes will also ease the monthly cash flows of Indian households since essentials are now cheaper, and families will save more on their daily necessities. This additional liquidity enables buyers to take on higher risk for long-term assets like homes, directly improving affordability. In effect, demand will be buoyed by two key factors: lower construction input costs and higher disposable incomes. This aligns well with the government’s push toward Housing for All and will stimulate demand in Tier 2 and Tier 3 cities, where affordability is the key driver.
On the other hand, luxury housing falling under the 40% slab will see muted momentum in the short term, as higher taxation makes buyers more cautious. Developers will need to innovate, focusing on differentiated experiences, green design, and value creation to maintain traction in this segment. Overall, the restructured GST slabs will not only boost affordability but also steer the market toward a more balanced and inclusive growth trajectory.”
The cement cut comes at a time when real estate developers have been under pressure from high financing costs and rising prices of other materials such as steel and electrical fittings. The relief on cement offers some stability, though broader input cost challenges remain. Analysts caution that while the GST cut addresses a longstanding grievance, overall construction expenses are shaped by multiple variables, including labour charges and borrowing rates.
The real estate sector, already witnessing a revival in residential demand over the past year, is expected to gain momentum ahead of the festive season. New launches, particularly in mid-income and affordable housing categories, could see stronger traction as developers adjust pricing structures.
Infrastructure projects, which form a critical component of India’s growth strategy, are also positioned to benefit. With government allocations towards roads, railways, and urban development remaining high, the cement GST reduction aligns with national priorities of building faster and at lower cost.
The broader GST overhaul is expected to encourage consumption across multiple sectors, from FMCG to automobiles and insurance. The Council anticipates that volume growth and improved compliance will balance any short-term revenue impact from reduced tax rates. The new 40% slab for luxury and sin goods is designed to protect revenue inflows and discourage high-consumption categories with health and environmental concerns.
As the new structure takes effect on September 22, much will depend on how quickly the benefits filter down to consumers and how effectively the government manages the fiscal balance. For now, the consensus across policymakers, developers, and analysts is clear: the reform marks a new chapter in India’s tax regime, with potential long-term benefits for both the economy and ordinary citizens.
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