The 31st meeting of the Goods and Services Tax (GST) Council, held in December 2018, deferred a decision to reduce the GST rate for cement from 28 per cent to 18 per cent.

Kindly note the image has been published only for representational purposes. Photograph: Adnan Abidi/Reuters

This was despite recognising that cement — along with automobile parts — remained among the few mass-consumption items still taxed at the highest slab, which was originally meant for luxury and sin goods.

 

Explaining the rationale behind the decision, then finance minister Arun Jaitley had said at the time that GST on cement generated a revenue of around Rs 13,000 crore and auto parts around Rs 20,000 crore.

“So if we bring down these items from 28 to 18, there will be an impact of Rs 33,000 crore.

“The Council felt that this was too steep at the moment…. That obviously will be our next target as and when the affordability improves,” he had said.

More than six years later, the status quo remains.

Cement continues to be taxed at 28 per cent, which makes it the only major construction material — crucial to infrastructure development — to be subject to the highest GST rate.

Cement’s strategic importance

India is the second-largest producer of cement in the world.

According to the Economic Survey of India 2024–25, the current annual installed capacity of the cement industry stands at about 639 million tonnes, with cement production touching around 427 million tonnes in FY24.

“Domestic cement consumption is around 290 kg per capita, against a global average of 540 kg per capita.

“The government’s focus on mega projects like highways, railways, and housing schemes, coupled with rural development and industrial growth, is expected to fuel significant cement demand,” the survey stated.

The role of cement is especially critical in sectors such as affordable housing, national infrastructure projects, urban development, rural roads, and irrigation.

Given the Centre’s ambitions in these areas, the high rate of taxation for such a vital input has been a source of frustration for the industry.

The cement industry has repeatedly petitioned the government to reduce the GST rate to 18 per cent, arguing that such a move would reduce construction costs, spur infrastructure growth, and improve housing affordability.

“When GST was introduced in 2017, the logic was to simplify and rationalise the tax structure.

“Yet, cement remained in the top slab. It’s time we reassessed this,” said a senior executive from a leading cement company, requesting anonymity.

While the government does not disclose GST collections on a commodity-wise basis, tax experts and industry estimates suggest that cement contributes between 5 and 7 per cent of the total revenue collected under the 28 per cent slab.

That slab itself accounts for around 13 to 15 per cent of overall GST collections — making cement a critical contributor.

Affordability with fiscal prudence

Reducing the GST rate on cement would lower overall construction costs, stimulate both private and public capital expenditure, and increase housing affordability.

According to Boman Irani, president, Confederation of Real Estate Developers’ Associations of India (Credai), reducing GST on cement would directly lower construction costs by 5–8 per cent (depending on project typology), make housing more affordable, especially for the affordable and mid-segment categories.

It would also free up developer capital to launch new projects and encourage faster private sector expansion, besides catalysing public infrastructure since government projects also suffer from high input costs.

Irani said Credai had repeatedly submitted that if cement GST was reduced to around 18 per cent, housing prices could fall by 2–3 per cent — particularly in cost-sensitive categories like Rs 40 lakh to Rs 1.5 crore homes (affordable to mid-segment).

However, from the government’s perspective, the timing may not be right.

“We are considering rationalisation, but the exercise has to be revenue-neutral,” a government official told Business Standard on the condition of anonymity.

“We can’t afford a sharp fall in GST revenues, especially with the compensation to states no longer in place.”

Moreover, with major revenue-generating items like petroleum, diesel, and aviation turbine fuel still outside the GST ambit, the pressure to retain high-yield items like cement under the top tax slab is even greater, the official added.

Another official pointed out that even in the pre-GST era, cement attracted a high incidence of indirect taxation — and this legacy continues under the GST regime.

“This historical trend, combined with the fact that cement is a major contributor to government revenue, makes it highly unlikely that it will be brought under a lower tax bracket anytime soon,” the official said.

“Until the government identifies a viable alternative source of revenue, reducing the GST rate for cement will remain a formidable challenge.”

The issue is compounded by the nature of cement usage and how it is treated under GST rules.

According to Abhishek Jain, partner and national head of indirect tax at KPMG in India, cement contributes significantly to the exchequer because of both its high consumption and the nature of the tax itself.

“Since it’s primarily used in construction — a non-creditable activity — the tax on cement directly adds to government coffers,” he said.

“Hence, the government is insistent on any rate reduction being carefully evaluated to balance consumer benefit with revenue impact.”

Legal experts argue that the burden of taxation is made heavier by restrictions on input tax credit related to cement.

Cement contributes significantly to government revenue not just because of its high GST rate, but also due to the way availing of credit is blocked or restricted under the statute.

“This denial of credit means businesses bear the tax cost without any offset, leading to a cascading effect and higher revenues for the government,” said Abhishek Rastogi, founder of Rastogi Chambers, who is currently representing over a dozen petitioners before the MMMMMMSupreme Court, challenging the constitutionality of input tax credit restrictions on cement.

“While it is difficult to precisely quantify cement’s share in total GST collections, its impact is undeniably substantial and warrants a re-evaluation of credit restrictions to support infrastructure growth,” he added.

The debate around cement is emblematic of the broader conversation on the structure and evolution of GST in India.

When introduced in 2017, GST was envisioned as a simplified, unified, and revenue-neutral tax system.

However, the existence of multiple tax slabs, frequent rate changes, and political tensions between the Centre and states have prevented the system from achieving that vision.

Many experts advocate a streamlined three-rate GST structure: A low rate of, say, around 5 per cent for essentials; a standard rate of 12–15 per cent for most goods and services; and a higher rate (25–28 per cent) for sin and luxury goods.

Cement, they argue, is an essential industrial input and should logically fall in the middle slab.

As India enters the second phase of GST — marked by a shift from compliance and coverage to consolidation and rationalisation — the system faces tough policy choices.

Cement is symbolic of those choices: An essential product that fuels national growth and is a revenue generator, yet remains burdened with heavy tax.

How the government navigates this dilemma will not only shape the future of one sector but could also define the next chapter of GST reform in India.