If you're a builder, developer, or someone about to buy an under-construction flat — the GST picture changed significantly after September 22, 2025. Cement is no longer taxed at 28%. Granite blocks are cheaper. And the rate structure under HSN code 9954 has been rationalised. Here's the complete, updated breakdown of GST on construction services and materials as it stands in 2026.
Under the GST framework applicable in FY 2026, multiple slabs apply to construction services and works contracts under HSN 9954, depending on project type, client category, and ITC eligibility.
Government infrastructure projects — roads, bridges, canals, irrigation works — are taxed at 12% GST, and some are fully exempt if they qualify under specific government infrastructure categories. Commercial and non-notified projects remain at 18%.
The logic hasn't changed: public infrastructure gets a lower tax burden to keep project costs manageable. Private commercial development gets the full rate, but gets full ITC in return — which partly offsets it.
The 1% and 5% concessional rates for housing remain unchanged post-September 2025. What changed is on the materials side — and that's where the real saving is.
This is where the September 2025 reforms made the biggest difference for builders and homebuyers.
On September 3, 2025, Finance Minister Nirmala Sitharaman announced significant GST cuts on construction materials. Cement GST dropped from 28% to 18%, while granite blocks fell from 12% to 5%, effective September 22, 2025.
Steel, notably, did not see a rate cut. TMT steel bars and rods continue to attract 18% GST under HSN 7213/7214 — unchanged from before.
Cement is typically 12–18% of total construction cost on any residential project. A 10-percentage-point drop in GST on cement is not a small number.
On a ₹50 lakh construction project, the cement GST reduction alone saves ₹75,000 to ₹1.5 lakh depending on the cement intensity of the design. For apartment buyers, that saving is meant to pass through in pricing — though whether individual builders actually pass it on is a separate conversation worth having with your developer.
One practical note: many contractors updated their material price schedules only in Q4 2025. If your quote predates October 2025, ask for a revised cement cost line reflecting the post-September rates before signing anything.
Residential construction remains the most nuanced part of the GST structure — and the one that trips up buyers most often.
For homebuyers: Under-construction flats attract 1% GST for affordable housing and 5% for regular residential projects. Ready-to-move or completed properties with a Completion Certificate attract zero GST — only stamp duty and registration charges apply. That gap makes completed properties significantly more attractive to buyers watching their total outflow.
For builders: The concessional rate sounds helpful, but there's a catch that squeezes margins. Builders on affordable (1%) and regular residential (5%) projects cannot claim ITC on inputs — cement, steel, tiles, subcontractor invoices, none of it. The GST paid on inputs has to be absorbed by developers, which adds to cost even as it improves tax clarity for the buyer.
Under-construction vs. ready-to-move — the numbers:
Commercial properties under construction attract 18% GST with full ITC available. That's a significant structural difference from residential. Full ITC means developers can offset the GST paid on materials and services against their output tax liability — which keeps effective costs more manageable, even at a higher headline rate.
Buyers of commercial space pay more upfront on paper. The benefit flows back through better-priced inputs on the developer's end.
Government-contracted infrastructure — roads, bridges, public utilities, water supply — generally attracts 12% GST under works contract services. Some works contracts for government projects are exempt if they qualify under specific notified infrastructure categories.
Contractors working on public projects benefit from lower tax incidence and, in most cases, full ITC availability — which speeds up project execution and keeps government infrastructure costs from ballooning unnecessarily.
Here's how the numbers actually add up on a typical residential project under the 5% scheme:
The buyer sees 5% on the service value. But the builder paid 18% on materials and couldn't claim any of it back. That ₹1,80,000 in material GST gets baked into the project price — so the buyer's effective tax burden is higher than the 5% headline suggests.
This embedded cost issue is exactly what the cement rate cut was designed to address. With cement now at 18% instead of 28%, that embedded material tax for cement-heavy projects drops meaningfully — though steel staying at 18% with no ITC recovery means the relief is partial, not complete.
For residential builders, ITC is blocked across the board at concessional rates. Every rupee of GST paid on cement, steel, tiles, and labour services is a sunk cost that gets pushed into project pricing. There's no recovery mechanism — just cost management and pricing strategy.
For commercial developers and infrastructure contractors, ITC works as it should — input offsets output, and the effective tax rate is lower than what the headline numbers suggest.
One unified tax: VAT, Service Tax, and Excise Duty are gone. One rate, one filing, one compliance framework — that alone removed enormous friction from multi-state projects and interstate material procurement.
Transparency: E-invoicing mandates and real-time return tracking have significantly reduced under-reporting and informal cash transactions in construction. Developers and buyers are both working with cleaner numbers now.
Cost relief through material rate cuts: The September 2025 cement rate reduction — from 28% to 18% — is the most consequential GST change for the construction sector since the system launched in 2017. The stated aim is to lower construction expenses and promote affordable housing across India.
ITC efficiency for eligible projects: For commercial construction and government infrastructure, full ITC availability means the system works as intended — tax paid on inputs reduces tax owed on outputs, without dead-end embedded costs eating into margins.
Not everything is smooth. A few structural problems remain, even post-September 2025 reforms.
Steel still at 18%, no ITC recovery: Steel didn't get a rate cut. For residential builders, that 18% on TMT bars remains a blocked cost — absorbed, not recovered. On large residential projects with heavy steel use, this is still a significant margin squeeze.
Compliance burden for small contractors: E-invoicing, GSTR filings, HSN code classification — these are manageable for large developers with dedicated finance teams. For a small contractor running two or three projects with a handful of staff, the paperwork is genuinely heavy. This hasn't changed.
Luxury bracket uncertainty: The broader GST 2.0 framework introduced a 40% bracket for luxury goods. For high-end residential developments using premium imported fittings, marble, and luxury materials, this could push effective costs up — the full implications for luxury real estate are still being worked through by developers and tax professionals alike.
Mismatch between material and service rates: Materials are taxed when the builder buys them. The concessional service rate applies when the builder charges the buyer. These two rates don't cancel out — they create a structural gap that the builder absorbs, which finds its way into pricing regardless of the headline rate shown to the buyer.
Here's a clean summary of what changed effective September 22, 2025, and what remained the same:
The GST rationalisation effective September 22, 2025 maintained concessional rates of 1% and 5% without ITC for residential construction, while 18% GST with ITC remains the dominant rate for commercial and industrial construction. The relief came almost entirely on the materials side — not on service rates or ITC rules.
Getting the rate right is one thing. Filing it correctly is another entirely.
HSN code 9954 must be correctly applied across all invoices for construction services. Misclassification — using the wrong sub-heading, mixing residential and commercial rates on a mixed-use project, or applying the wrong ITC treatment — triggers notices and penalties that eat up far more time than getting it right the first time.
E-invoicing is mandatory above threshold turnover. For developers managing multiple projects, ensuring every subcontractor in the chain is also e-invoice compliant is part of the overall compliance responsibility, not just your own invoices.
ITC reconciliation matters monthly, not annually. For commercial and infrastructure projects where ITC is allowed, matching input credits with GSTR-2B and keeping documentation clean is a monthly discipline — leaving it for year-end creates reconciliation nightmares.
If you're doing your first large project, or if your project spans both residential and commercial components, getting professional GST support isn't a luxury. It's risk management.
A: The GST rate on under-construction residential property in 2026 is 1% for affordable housing and 5% for regular residential projects — both without Input Tax Credit for builders. These rates remain unchanged after the September 2025 GST reforms. Ready-to-move properties with a Completion Certificate attract zero GST.
A: Cement GST was reduced from 28% to 18%, effective September 22, 2025. This applies to all cement types — OPC, PPC, and Portland Slag Cement — under HSN code 2523. The reduction is the single biggest material-side GST relief for the construction sector since 2017.
A: No. Builders working under the 1% or 5% concessional GST rates for residential construction cannot claim ITC on any inputs — cement, steel, tiles, or subcontractor services. That tax is absorbed as a project cost and typically gets factored into the property's final selling price.
A: HSN/SAC code 9954 covers all construction services under GST — residential, commercial, industrial, and government projects, including renovation and repair work. The applicable GST rate under 9954 ranges from 1% to 18%, depending on project type, buyer category, and ITC eligibility.
A: The September 22, 2025 GST reforms reduced cement GST from 28% to 18% and brought down rates on granite blocks, marble, and tiles from 12% to 5%. Service rates for residential and commercial construction remained unchanged. ITC rules for residential builders also stayed the same — blocked at concessional rates.
A: No. Ready-to-move residential properties where the builder has obtained the Completion Certificate before the sale attract zero GST. Only stamp duty and registration charges apply. This makes completed properties financially attractive compared to under-construction units, especially for buyers sensitive to total acquisition cost.
A: Commercial construction — offices, malls, warehouses, retail spaces — attracts 18% GST with full Input Tax Credit available. Developers can offset the GST paid on materials and services against their output tax liability, which brings the effective cost down compared to the headline 18% figure.
A: Works contract services for government infrastructure projects attract 12% GST under HSN 9954. Some specifically notified public utility projects may be exempt. Private commercial works contracts attract 18% GST. Residential works contracts are covered under the 1% or 5% concessional rates where applicable.
A: No. Resale of already-owned or occupied property is fully exempt from GST. GST on construction applies only to new properties being sold by a builder or developer while still under construction. Once a property changes hands after the first registered sale, subsequent transactions fall outside GST scope entirely.
A: The effective burden is higher than the nominal 5%. The builder pays 18% GST on materials like cement and steel but cannot claim ITC under the concessional residential scheme — that absorbed cost gets embedded in the project price. The cement rate cut from 28% to 18% (effective September 2025) has reduced this embedded cost somewhat, but the structural ITC restriction for residential builders remains firmly in place.
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