The domino effect: How GST 2.0’s material cost savings could reshape real estate projects 

GST 2.0 represents a pivotal moment in India’s tax and business ecosystem. With a renewed emphasis on simplification, rationalisation, and digital compliance, the reform goes beyond being just a fiscal overhaul—it can fundamentally reshape cost structures across industries.

Foremost among the beneficiaries is the real estate sector, where material costs constitute a significant portion of total project expenditure. The industry is well-positioned to gain from the GST rate rationalisation, expected to deliver measurable cost efficiencies through reduced applicable tax rates. 

Enhancing project economics through rate rationalisation

When the GST framework for real estate was revised in April 2019, the council lowered GST rates on residential properties but simultaneously withdrew the input tax credit (ITC) facility for developers. Consequently, GST paid on construction materials—such as cement, steel, paints, tiles, and fitouts—became a non-creditable cost, increasing the overall cost of construction.

However, significant relief has emerged under GST 2.0. Cement, which was historically taxed at 28% and represents a major share of construction cost, now attracts 18% GST, a substantial 10% reduction. Although ITC restrictions continue, the lower rate effectively reduces the embedded, non-creditable tax component, bringing down the total project cost, despite the unchanged credit limitation. A similar cascading benefit is evident across related inputs. The removal of compensation cess on coal has reduced production costs for cement manufacturers, translating into lower cement procurement prices for developers. Ready-mix concrete (RMC) producers have also benefited, as cheaper cement drives additional savings that flow through to project budgets.

Steel, another critical construction material, has gained indirectly. Since coal is a key input in steel manufacturing, eliminating the compensation cess reduces energy and raw material costs, resulting in lower landed prices for structural steel and reinforcement bars used in construction.

Beyond core materials, the rate rationalisation of items such as sand-lime bricks, stone masonry materials, and architectural finishes adds cumulative savings across the value chain. Rates on marble, granite, and tiles, depending on grade, have been brought down to 5-12%, while air conditioners, commonly installed in premium apartments, now attract 18% GST instead of 28%. Sustainability has also received a boost: GST 2.0 lowers rates on green and energy-efficient products, including biogas plants, solar heaters, power generators, and waste-to-energy systems. This allows developers to integrate environmentally responsible technologies without escalating project costs.

Developers who procure materials directly are likely to benefit most from these rate adjustments. Conversely, those relying primarily on work contractors or turnkey project structures may experience limited impact, since there has been no parallel reduction in the GST rate on contractors’ outward supplies. Moreover, GST paid by contractors remained creditable in their own hands even before GST 2.0, limiting incremental gains for developers.

The domino effect on project economics

The impact of GST 2.0 extends far beyond immediate cost savings. The rationalised rate structure enhances liquidity within the sector, reducing upfront tax outflows and easing working capital pressure. With lower embedded tax costs, developers can realign pricing models, margin expectations, and project timelines with a more efficient cost base. 

This improved cost environment can revive projects that were previously marginal on feasibility, accelerate fit-out and infrastructure development in high-growth segments, and give developers flexibility to invest in higher-quality finishes or sustainable design features that enhance long-term asset value. However, to ensure these savings translate into tangible value, developers must embed strong commercial discipline—aligning contracts with the new rate structure, revisiting cost assumptions, and ensuring transparency in procurement to prevent savings from being absorbed within intermediary margins.

As GST 2.0 strengthens digital traceability and compliance, it encourages the formalisation of small and medium material suppliers, improving quality, pricing predictability, and accountability. Streamlined classification and rate structures also reduce disputes, accelerate tendering and contract alignment, and make cost forecasting more dependable.

For those shaping India’s built environment, the opportunities are clear. Projects once constrained by tight margins can now move forward; capital-intensive sectors can scale more confidently; and investors gain assurance through greater predictability and lower cost volatility.

 Strengthening investor and market confidence

Perhaps the most far-reaching impact of GST 2.0 lies in its potential to enhance investor confidence. Simplified tax rules and a more predictable regime foster a transparent environment that attracts both domestic and international capital. When investors see that projects are less exposed to cost disputes or unexpected tax liabilities, they are more inclined to commit capital and scale their participation. This, in turn, has a multiplier effect—greater access to finance enables more ambitious developments, reinforcing India’s position as a global investment destination and driving momentum across the construction ecosystem.

Homebuyer’s advantage

In price-sensitive segments such as affordable and mid-income housing, these cost savings can significantly improve project viability. Lower construction costs can translate into competitive pricing, stimulating demand and accelerating sales. At a broader level, a reduction in the effective tax burden on common goods and services can also enhance household purchasing power, strengthen consumer confidence, and encourage higher discretionary spending, particularly in real estate. For developers, this represents an opportunity to capitalise on renewed demand and engage a wider buyer base.

While GST 2.0 may not eliminate all inefficiencies in the taxation of real estate, it clearly moves the sector toward greater efficiency, predictability, and transparency. By rationalising material rates and simplifying structures, the reform enables developers to operate with leaner and more resilient financial models. Beyond immediate cost savings, GST 2.0’s true value lies in reinstating confidence—among developers, investors, and homebuyers alike. Over time, this structural shift has the potential to expand housing supply, attract institutional capital, and strengthen India’s real estate ecosystem along its fastest-growing corridors.

(Gandhi is partner, Deloitte India; Dharnidharka is director, Deloitte India; and Moolya is manager, Deloitte India. Views are personal.)