Cement is the backbone of India’s infrastructure and housing sectors, but it has long carried the burden of being in the highest GST slab of 28%. Builders, developers, and policymakers consistently argued that such a high tax was inconsistent with the government’s push for “Housing for All” and affordable infrastructure.
At last, the 56th GST Council Meeting held on 3rd September 2025 delivered a long-awaited reform: GST on cement has been reduced from 28% to 18%. This move is expected to bring substantial cost savings for developers and contractors, potentially making housing more affordable while boosting infrastructure projects.
Let’s explore what this means for the sector, the fine print of compliance, and the actionable steps stakeholders must take.
Cement Under GST: The Backdrop
When GST was introduced in July 2017, cement was placed in the highest 28% slab, aligning it with “luxury goods” like SUVs and consumer durables. The rationale was revenue maximization since cement is widely consumed and has limited substitution.
Legal framework:
- Section 9, CGST Act, 2017 – governs levy and collection of GST on supplies, including cement.
- Section 8, Compensation to States Act, 2017 – imposed cess on sin/luxury goods, though cement was taxed only at 28% without cess.
- HSN 2523 – covers cement products for GST classification.
With the new decision, cement now moves to 18%, aligning it closer to core construction materials like steel (18%).
Price Mechanics – Translating Slabs into Savings
Let’s crunch the numbers.
- Before (28%):
Cement bag MRP = ₹400
GST @28% = ₹112
Final cost = ₹512 - After (18%):
Cement bag MRP = ₹400
GST @18% = ₹72
Final cost = ₹472
Savings: ₹40 per bag (~8%).
In large-scale projects, this adds up fast:
- A mid-sized housing project consuming 50,000 bags saves ₹20 lakh.
- An infrastructure project using 2 lakh bags saves ₹80 lakh.
Why This Matters for Real Estate & Infra
1. Affordable Housing Boost
Reducing cement costs lowers per-unit construction prices. Developers may pass benefits to homebuyers, improving affordability and aligning with Pradhan Mantri Awas Yojana goals.
2. Infra Projects Get Relief
Highways, bridges, metro projects, and government EPC contracts consume massive cement volumes. Lower GST reduces input costs and makes bidding more competitive.
3. Working Capital & Margins
Contractors working on fixed-rate tenders benefit immediately as margins improve when cement is procured at a lower rate.
4. Market Sentiment
The cut signals government intent to support growth sectors, boosting confidence among investors and lenders.
Developer & Contractor To-Dos
With great relief comes great compliance responsibility. Developers must update systems and contracts quickly.
Re-Work Contracts
- GST Clauses: Update ongoing contracts to reflect 18% instead of 28%.
- Variation Clauses: Safeguard against disputes where buyers/clients expect full pass-through.
Update ITC & Pricing
- Input Tax Credit (ITC): Under Section 17(5) CGST Act, ITC on cement used for constructing immovable property (for own use or sale) is blocked. Developers must carefully track eligibility.
- Pricing Recalibration: Builders may restructure payment schedules and buyer agreements to account for reduced costs.
Communicate Transparently
- Update RERA project filings, cost sheets, and buyer communications.
- Revise brochures and loan sanction papers with new cost assumptions.
Watch-Outs
- Cartelization Risks
Lower GST must translate into actual consumer benefit. The cement industry has been accused of cartelization in the past; vigilance is necessary to prevent price manipulation. - Blocked Credit Issue
While GST is reduced, developers constructing for sale cannot claim ITC due to Section 17(5). Thus, the actual benefit may not fully pass through unless contracts are structured accordingly. - Classification Disputes
Cement has multiple varieties (Portland, Pozzolana, etc.). Ensuring correct HSN under 18% slab is crucial to avoid litigation.
Real-Life Scenarios
- Affordable Housing Project: A developer constructing 1,000 affordable units saves nearly ₹1.5 crore in raw material costs, potentially passing ₹1–2 lakh savings per flat.
- Government Infra Contract: A state government road project worth ₹500 crore sees cement cost reduction of ~₹20 crore, enabling budget reallocations.
- Small Builder: A mid-tier contractor building a township gains higher profit margins as his tender was already locked at earlier cement rates.
FAQs
Q1: From when is the 18% rate applicable?
From 22nd September 2025, as per the Council’s recommendation, once CBIC notifies it.
Q2: Can all developers claim ITC on cement now?
No. ITC restrictions under Section 17(5) continue. ITC is blocked if cement is used for construction of immovable property meant for sale.
Q3: Will this reduce house prices?
In theory, yes. However, actual reduction depends on how much of the savings developers pass on and how the market responds.
Q4: Does this apply to white cement and special grades?
Yes, provided they fall under the notified HSN codes covered in the 18% slab.
Q5: What happens to stock purchased at 28% but sold after 22nd Sept?
Transitional provisions under Section 14 CGST Act may apply, and dealers should account for stock carefully.
Legal & Policy Context
- Section 9, CGST Act – general charging provision for GST.
- Section 14, CGST Act – governs supplies during rate change.
- Section 17(5), CGST Act – blocks ITC on cement used for immovable property not for further supply.
- RERA Regulations – mandate cost disclosures to buyers.
- Competition Commission of India (CCI) – monitors cartelization in cement pricing.
Conclusion
By slashing GST on cement from 28% to 18%, the government has delivered a long-standing industry demand. This move lowers construction costs, boosts infra projects, and nudges affordability in housing.
But the impact depends on implementation and transparency. Developers and contractors must:
- Update contracts and RERA disclosures,
- Re-assess ITC eligibility, and
- Ensure fair pass-through to consumers.
For the economy, this reform strikes the right balance—protecting revenue while enabling growth.
Builders, EPC firms, and infra contractors should immediately update ERP, contracts, and buyer communications to reflect the new 18% rate. Monitoring CBIC notifications is key before applying the change.
Cement may be a gray powder, but its GST story just turned a shade lighter for India’s growth path.
