NAREDCO Urges Government to Limit GST on Building Materials to 18%

Infographic depicting a scale balancing building materials like cement and bricks with the text urging the government to limit GST on building materials to 18%.

Real estate leaders at national convention highlight the importance of tax rationalisation for commercial leasing and sustainable growth.

Issue:
Whether the government can consider rationalising the GST rate on building materials to 18% and allow Input Tax Credit (ITC) on commercial assets constructed for leasing, as requested by the President of NAREDCO.

Rule :

  1. Section 11(1) of the CGST Act, 2017 – Enables the Government to grant exemptions or concessions in GST on the recommendations of the GST Council.
  2. Section 16(1) of the CGST Act, 2017 – Entitles a registered person to take credit of input tax charged on any supply of goods or services used in the course or furtherance of business.
  3. Notification No. 11/2017-Central Tax (Rate) and Notification No. 1/2017-Central Tax (Rate) – Prescribe GST rates for construction services and building materials like cement (generally taxed at 28%).
  4. Notification No. 3/2019-Central Tax (Rate) – Removes ITC for residential projects under affordable housing taxed at concessional rates (1% or 5%).

Application :

  • NAREDCO President has made two key demands:
    a. Reduce GST on building materials like cement from 28% to 18%, arguing that cement is an essential material and not a luxury.
    b. Allow ITC on commercial properties constructed for leasing, as ITC is currently denied in projects opting for the concessional 5% rate (without ITC).
  • The current tax policy aims to reduce end-user price burden, especially for affordable housing, by denying ITC in lieu of concessional GST rates. However, this increases the effective cost for developers due to tax accumulation on inputs.
  • Cement and some other materials fall under the 28% bracket, which increases input costs significantly. Reducing this rate to 18% may help reduce construction costs and make housing more affordable.
  • Both these matters fall within the purview of the GST Council, which is the constitutional authority to recommend rate revisions and ITC policy modifications under Article 279A and the relevant sections of the CGST Act, 2017.

Conclusion:
The GST Council is empowered under Section 11(1) and Section 16, read with Article 279A of the Constitution, to recommend both (a) rationalisation of GST rates on building materials, and (b) restoration or extension of Input Tax Credit for commercial construction projects. The demands raised by NAREDCO would require policy deliberation and GST Council’s recommendation for implementation through appropriate notifications.