GST on cement in India

The cement industry is the backbone of India's infrastructure development, making the country the second-largest cement producer globally after China. In FY23, India produced 374.55 million tonnes of cement, marking a 6.83% year-on-year growth. Despite its critical role in nation-building, cement is taxed at an 8% for most types of cement under GST 2.0.

Let's understand the GST on cement in India and its impact on the overall industry.

What is the GST on cement?

GST for cement refers to the unified tax rate of 18% applied to most cement products under India's comprehensive indirect tax system. The current cement GST rate positions it in the highest tax bracket alongside luxury goods, despite being important in construction and infrastructure development.

Before GST, cement manufacturers faced a complex tax structure, with multiple excise duties and VAT varying by type, purpose, and supply method. The total indirect tax burden ranged from 24-25%, creating significant compliance challenges.

The GST framework categorises cement products based on their composition and use. Here are the different rates applicable:

If you are in the cement business, understanding the applicable GST rates is important for the correct filing of GST returns. Since the rates are different for different types of products, knowing the correct rates is important.

GST 2.0 brings a big change: the normal GST rate on cement is changed from 28% to 18%. That's a big adjustment—it reduces building costs and provides a boost to infrastructure projects.

Impact of GST on the cement industry

The introduction of GST in cement has streamlined taxation but increased operational costs for the cement industry. The 18% GST rate has replaced multiple indirect taxes, simplifying compliance.

While the removal of interstate checkpoints has improved logistics, reduced transit delays, and lowered distribution costs, the high tax rate on cement and raw materials continues to challenge manufacturers.

Warehousing has become more efficient as companies consolidate facilities, reducing underutilisation. While coal attracts 5% GST, the additional clean energy cess cannot be claimed as an input credit. Similarly, electricity remains outside the GST framework, preventing manufacturers from offsetting these substantial costs against their GST liabilities.

With the new rate of 18%, developers finally have some reprieve from Input costs being high. Warehousing and logistics remain smooth under GST 2.0, and it's simpler to claim input credits. Pre-filled e-invoice data equals less paperwork and fewer errors.

Some things, however, don't change. Electricity remains outside the purview of GST, and the clean energy cess on coal continues not to be creditable.

Impact of GST on cement manufacturing companies

Major cement companies have had to adapt their pricing strategies in response to the high tax rate. Some manufacturers attempted to boost demand by reducing product prices by 2-3% following GST implementation to stimulate activity in the real estate and infrastructure sectors.

The high GST on cement significantly impacts production costs, especially considering that small changes in the GST rate or raw material prices can substantially affect profitability margins.

While the simplified tax structure has reduced compliance complexities, the high GST rate increases production expenses. Hence, pricing strategies are crucial for maintaining competitiveness and passing cost savings to consumers.

Also Read: How does GST affect the Real Estate Sector?

How to calculate GST on cement?

Calculating cement GST follows a straightforward formula:

• GST Amount = (Cost of Cement × GST Rate) / 100

For example, if a cement bag costs ₹500:

• GST Amount = (500 × 18) / 100 = ₹90
• Total Price = ₹500 + ₹90 = ₹590

This simplified calculation method eliminates the previous complexity of multiple tax computations, providing greater transparency for both businesses and consumers.

What is the GST rate on sand?

Natural sand, an essential component in concrete preparation, attracts a significantly lower GST rate of 5%. This stark difference between the taxation of cement and sand highlights the disparities in the GST framework for construction materials.

The lower rate for sand helps partially offset the high cement GST rate, though the overall tax burden on construction remains substantial, given cement's higher proportional cost in most projects.

When mixing cement, knowing the GST rate for sand, concrete, and other materials used in cement mixing is important. This will help you identify the overall cost of cement used in construction.

What is the GST rate on bricks?

The GST framework applies varying rates to different types of bricks. Here is a look at the different types of bricks used in construction activities and the GST rates applicable on each:

• Normal red bricks and fly ash bricks: 5%
• Cement bricks and certain specialised types: 12%
• Higher-end bricks and specific materials: 18%

This tiered approach aims to balance revenue generation with affordability considerations for basic construction materials. Depending on the type of brick used, the GST liability would be different, which should be kept in mind when estimating total costs.

Impact of GST on cement for real estate industries in India (in pointers)

The real estate industry is immediately impacted. A reduced GST rate on cement means lower construction costs, and projects become more affordable. Direct beneficiaries are housing developers and large-scale infrastructure projects.

• In the case of under-construction buildings, GST does not change: 5% for normal housing, 1% for affordable housing, but Input Tax Credit (ITC) is not allowed. So, though a reduced cement rate provides some relief, developers are still unable to claim ITC on cement or other key materials.
• Now, with cement at 18%, sand at 5%, and bricks at 5–12%, the tax system is better balanced than it was. Nevertheless, experts still continue to call for reducing rates further, particularly to render budget housing more affordable.
• GST 2.0 also enhances compliance—pre-filled returns, improved invoice matching, and lower administrative costs. The concessional rates of 12% for cement used in affordable housing and metro projects are maintained by the government with a view to incentivising more large-scale developments.

Overall, GST 2.0 is a definite step in the right direction for real estate. Rates are more pragmatic, compliance is easy, and the sector realises true progress—though there is a very strong demand for bringing back ITC to achieve the full benefits of reduced taxes.

Conclusion

For businesses handling large-scale cement procurement, especially for extensive projects, efficient cash flow management is essential. However, tailored financing options like Axis Bank's Supply Chain Finance include various solutions, such as Dealer Finance, Vendor Finance, and Factoring. This helps manufacturers navigate the financial complexities arising from high GST rates and maintain smooth operational flows.

Frequently Asked Questions

Who is liable to pay GST on cement?

All cement suppliers, regardless of size, must pay 18% GST on most cement products. This tax applies across the entire supply chain, from manufacturers to retailers, with the end consumer bearing the cost through higher prices.

How to calculate cement GST bills?

To calculate cement GST, multiply the pre-tax price by 0.18 to get the GST amount, then add it to the base price for the total payable amount. For bulk purchases, this calculation impacts project cost estimation.

Is GST applicable to all cement products in India?

GST applies to all cement products in India at different rates. Standard Portland cement is taxed at 18%, while mortars and concrete mixtures are taxed at 18%. Limestone and calcareous stone, essential for cement manufacturing, are taxed at 5%. No general exemptions exist, but reduced rates (5%) apply to cement used in affordable housing and metro projects instead of the standard 18%.

Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.

Tax and GST regulations are subject to change. The information in this article is based on applicable laws, rules, notifications, and interpretations in force as on the date of publication and may change due to amendments, judicial decisions, or regulatory updates.