Reduction in GST Rate on Housing: What Homebuyers Need to Know in 2026

• GST on under-construction residential property: 5% without ITC (non-affordable) / 1% without ITC (affordable housing)
• The 2019 reduction: GST cut from 12% → 5% (regular) and 8% → 1% (affordable) effective 1 April 2019
• Ready-to-move flats (with Completion Certificate): Zero GST
• Resale properties: Zero GST
• Affordable housing definition for 1% GST: Carpet area ≤ 60 sq m in metros (Bengaluru, Chennai, Hyderabad, Mumbai, Delhi NCR, Kolkata) / 90 sq m in non metros; AND price ≤ Rs. 45 lakh
• ITC removal: Builders can no longer claim Input Tax Credit under the new rates — the benefit must be passed to buyers through lower prices
• GST is calculated on 2/3rd of the property value (construction component); 1/3rd is treated as land

On 24 February 2019, the 33rd GST Council Meeting announced the most significant GST reform for the residential real estate sector since GST was introduced in 2017. The key changes, effective 1 April 2019:

• For non-affordable housing (under construction):
  • Old rate: 12% with Input Tax Credit (ITC)
  • New rate: 5% without ITC
• For affordable housing (under construction):
  • Old rate: 8% with ITC
  • New rate: 1% without ITC

The removal of ITC was the significant structural change. Under the old system, builders claimed ITC on construction inputs (cement, steel, paint, contractor services) and passed some of the benefit to buyers. Under the new system, builders cannot claim ITC — but the rates are lower. The net effect on buyers depends on the builder's specific input costs.

The definition of affordable housing for GST purposes covers two conditions — both must be met:

Condition 1 — Carpet area

• Metropolitan cities: carpet area ≤ 60 sq metres (645 sq ft)
• Non-metropolitan cities and towns: carpet area ≤ 90 sq metres (968 sq ft)

Metropolitan cities for GST purposes: Bengaluru, Chennai, Hyderabad, Mumbai Metropolitan Region, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, and Faridabad), and Kolkata.

Condition 2 — Property value

• Price ≤ Rs. 45 lakh (for both metro and non-metro locations)

If your under-construction flat meets both conditions (carpet area limit AND Rs. 45 lakh), your GST rate is 1% on the construction component. If either condition is not met, the rate is 5%.

For GST purposes, property value is split:

• Land component: 1/3rd of the total property price — exempt from GST
• Construction services component: 2/3rd of the total price — GST applies to this

GST calculation formula: GST = (Property price × 2/3) × GST rate (1% or 5%)
 

Example — Non-affordable housing:
Property price: Rs. 80 lakh
Construction component: Rs. 80 lakh × 2/3 = Rs. 53.33 lakh
GST at 5%: Rs. 53.33 lakh × 5% = Rs. 2.67 lakh
 

Example — Affordable housing:
Property price: Rs. 40 lakh (below Rs. 45 lakh)
Carpet area: 85 sq m (non-metro, below 90 sq m limit)
Construction component: Rs. 40 lakh × 2/3 = Rs. 26.67 lakh
GST at 1%: Rs. 26.67 lakh × 1% = Rs. 26,667
 

The affordable housing GST savings is substantial compared to the old 8% rate or the 5% standard rate.

• Ready-to-move flats: Once a builder obtains the Occupancy Certificate (OC) or Completion Certificate (CC), the flat transitions from "under construction" to "ready for occupancy." After this point, any sale is GST-exempt. This is one reason buyers often prefer to purchase from completed projects — zero GST.
• Resale properties: Any residential property being sold by the original allottee (owner who already took possession) is a resale transaction. Resale transactions are entirely outside the GST framework — zero GST. Stamp duty and registration charges still apply separately.
• Land sales: Pure land sales (without construction) are also outside GST scope.

The GST Council's broader 2025 structural reform simplified overall slabs from the original 5%/12%/18%/28% structure to broader bands. While the residential property rates (1%/5%) were unchanged, the reform of construction material GST rates has an indirect impact: Cement, steel, paints, and contractor services that builders use in construction are taxed under GST. To the extent these input material rates changed in the 2025 reform, it affects builder costs and — in a competitive market — eventually filters through to end-user pricing. The 2025 reform is expected to reduce construction input costs by 3–5% for certain material categories.

GST increases the upfront cost of an under-construction property. This affects home loan planning in two ways:

• Higher total property cost: The GST amount (typically Rs. 50,000–Rs. 3 lakh depending on property price) is payable in addition to the base property price, stamp duty, and registration charges. Budget for this as part of your total acquisition cost.
• GST is not mortgaged: Banks typically do not include GST in the home loan amount — it is payable directly by the buyer to the developer. Confirm your total cash requirement before applying.
   

For an Rs. 80 lakh under-construction non-affordable property, the total outgo at purchase is approximately:

• Property price: Rs. 80 lakh
• GST (5%): Rs. 2.67 lakh
• Stamp duty (varies by state, ~5–7%): Rs. 4–5.6 lakh
• Registration charges (~1%): Rs. 0.8 lakh
• Total: approximately Rs. 87–89 lakh
   

Plan your down payment and loan accordingly. The Bajaj Finance Home Loan EMI Calculator helps model the loan component specifically.

The transition from ITC-allowed to ITC-not-allowed is nuanced. Under the old 12% rate with ITC, builders could offset 5–8% of the project cost through input tax credits on materials and services. The net effective GST burden on the buyer was therefore lower than the headline 12%.

Under the new 5% (no ITC) or 1% (no ITC), the rate is lower, but the builder has no input credit to offset. For buyers, the critical point is: builders should not charge higher prices to compensate for the lost ITC — the lower rate is the compensating mechanism. If you encounter a builder increasing base prices while also charging 5% GST, the total cost increase may be higher than intended under the GST reform.

Always calculate total cost (base price + GST + stamp duty + registration) rather than comparing only the headline GST rate.

For buyers planning an under-construction home purchase, the practical implication of GST is straightforward: add the applicable GST to your total acquisition cost calculation, alongside stamp duty and registration. GST on under-construction property is not included in home loan amounts — it is a cash outflow at purchase.

The good news for most affordable housing buyers: if your target is a flat at or below Rs. 45 lakh with carpet area within the limits, 1% GST is a relatively manageable addition (Rs. 20,000–Rs. 30,000 on a typical affordable housing purchase). For non-affordable housing, the 5% rate on a Rs. 1 crore flat adds Rs. 3.33 lakh to your cash requirements — plan this as part of your down payment budget.

Ready-to-move properties eliminate GST entirely and are often worth paying a slight premium for, particularly for buyers who want to avoid the GST cash outflow and the construction risk that comes with under-construction purchases.