GST Rate on Cement - Impact of GST on Cement Industry

Introduction

Cement is often called the barometer of a nation's economic growth. From the highways connecting cities to the roof over your head, cement is the fundamental binding agent of modern infrastructure. India is the second-largest producer of cement in the world, yet for the average Indian home builder, buying a bag of cement often feels like a pinch to the pocket.

A significant portion of this cost is not the material itself but the tax component. Currently, cement attracts a Goods and Services Tax (GST) rate of 28%, placing it in the highest tax slab alongside luxury cars and aerated drinks. This classification has been a subject of intense debate between the industry and the government for years.

Why is an essential infrastructure commodity taxed like a luxury item? Does the 28% rate actually make cement more expensive than in the pre-GST era? In this guide, we will analyze the current tax structure, its ripple effect on real estate prices, and the industry's ongoing battle to bring this rate down to 18%.

Table of Contents

1. Current GST Rate on Cement (2025)
2. Why is Cement in the 28% Slab?
3. Pre-GST vs. GST: Was it Cheaper Before?
4. Impact on Housing and Real Estate Sector
5. Input Tax Credit (ITC) Rules for Builders
6. Impact on Infrastructure Projects
7. The Demand for 18% Rate Cut
8. GST on Transport of Cement (GTA vs Owner)
9. Conclusion
10. FAQs

Current GST Rate on Cement (2025)

As of the current financial year, the GST rate on cement remains unchanged at 28%.

This places cement in the "Demerit" or "Luxury" category, which is usually reserved for goods the government wants to discourage consumption of (like tobacco) or those consumed by the rich. However, since cement is a basic necessity for construction, this categorization is purely for revenue generation.

• HSN Code: 2523
• GST Rate: 28% (14% CGST + 14% SGST)
• Cess: There is no Compensation Cess on cement.

Also read: GST Rates in 2025: List of Goods and Services Tax slab rates

Why is Cement in the 28% Slab?

The government's logic is rooted in revenue protection. The cement industry is a massive contributor to the exchequer. Reducing the rate from 28% to 18% would result in a revenue loss of approximately ₹30,000 Crore annually for the government.

Furthermore, policymakers argue that the tax burden on cement in the pre-GST era was actually higher (around 29-31%). Therefore, fixing the rate at 28% was technically a tax reduction, even if it feels high to the consumer.

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Pre-GST vs. GST: Was it Cheaper Before?

To understand the impact, we must look at the math before July 2017.

Pre-GST Tax Structure:

Before GST, cement manufacturers had to pay a cocktail of taxes:

1. Excise Duty: Roughly 12.5% + specific component.
2. VAT (Value Added Tax): Varied by state, usually between 13% to 14.5%.
3. Entry Tax/Octroi: Charged on the movement of goods.

Total Incidence: When you combine Excise and VAT (tax on tax), the total tax burden comes to approximately 29% to 31%.

GST Regime:

The single rate is 28%.

So, optically, the tax has come down by 2-3%. However, the compliance cost and logistics efficiency under GST have improved, which should have ideally lowered prices more than what we see today.

Impact on Housing and Real Estate Sector

Cement constitutes roughly 10% to 15% of the total construction cost of a residential project. Shutterstock Explore

1. For the Common Man (Individual Home Builder)

If you are building your own house on a plot of land, you bear the full brunt of the 28% GST. You cannot claim Input Tax Credit (ITC). For every ₹1 Lakh you spend on cement, ₹28,000 goes to the government. This high rate directly inflates the cost of construction for individual home builders in Tier-2 and Tier-3 cities.

2. For Real Estate Developers

The impact here is tricky due to the new GST scheme for real estate (introduced in 2019).

• Residential Projects: Builders pay 5% GST (Affordable) or 1% GST (Non-Affordable) on the flat sales without ITC.
• The Problem: Since builders cannot claim ITC on the cement they buy, the 28% tax paid on cement becomes a "Cost" to them. They simply pass this cost on to the buyer by increasing the base price of the apartment.

Input Tax Credit (ITC) Rules for Builders

The availability of credit depends on the type of project.

• Commercial Projects: Builders can claim ITC. If they pay 28% tax on cement, they can set it off against the 18% GST they charge on the sale of commercial office space. This neutralizes the impact.
• Residential Projects: No ITC is available. The high tax on cement stays "stuck" in the value chain, leading to higher home prices.
• Government Contracts: For works contracts (building roads/dams), the GST on the service is usually 12% or 18%, but the contractor pays 28% on cement. This "Inverted Duty Structure" often leads to refund claims or higher project bids.

Impact on Infrastructure Projects

The government is the biggest consumer of cement for highways, bridges, and metro rail projects.

A high GST rate on cement artificially inflates the budget of these infrastructure projects. While the government earns taxes with one hand, it spends more on procurement with the other. A reduction in rates could lower the cost of national infrastructure development significantly.

The Demand for 18% Rate Cut

The Cement Manufacturers Association (CMA) and real estate bodies like CREDAI have relentlessly lobbied for a rate cut to 18%.

Arguments for 18%:

1. Affordable Housing: A lower rate would directly reduce construction costs, boosting the government's "Housing for All" mission.
2. Volume Growth: Lower prices would spur demand, potentially offsetting the revenue loss through higher sales volume.
3. Job Creation: The construction sector is the second-largest employer. Cheaper raw materials could revive stalled projects and create jobs.

Arguments Against:

1. Revenue Loss: The immediate hole of ₹30,000 Crore in the budget is too large to ignore.
2. Profiteering: There is a fear that if the tax is reduced, cement companies might not pass the full benefit to consumers and instead increase their base prices to improve margins.

GST on Transport of Cement (GTA vs Owner)

Cement is a low-value, high-volume commodity. Transport costs are huge.

• GTA (Goods Transport Agency): If a cement dealer hires a transporter, RCM applies at 5% (if GTA doesn't charge 12%).
• Freight: The high logistics cost (fuel + toll) is another reason cement prices remain high, irrespective of the GST rate.

Conclusion

The 28% GST on cement is a classic case of fiscal necessity versus social utility. While the government needs the revenue to run the country, the high tax rate acts as a dampener for the housing sector. Until the GST Council decides to move cement to the 18% slab, it will remain one of the most taxed essentials in the Indian economy.