New GST rates: Tax relief for India's cement industry comes at a cost

GST rate cut on cement from 28% to 18% is expected to benefit cement companies in the medium term, though margins may face pressure in the near term as benefits are passed on to consumers

The government’s decision to cut the goods and services tax (GST) on cement from 28 per cent to 18 per cent — a long-standing demand of the industry — has been widely welcomed. Analysts and industry leaders believe the move will aid affordability, boost infrastructure, and support profitability in the medium to long term, though near-term margins could tighten as companies pass on the benefit to consumers.

 

“For a long time, cement has been taxed at one of the highest rates among essential building materials compared to steel and other inputs. Lowering the rate to 18 per cent corrects this anomaly and ensures parity with other core materials,” said the Cement Manufacturers Association (CMA). “Moreover, a reduction in GST enhances the competitiveness of the Indian cement industry by creating a level playing field with global peers.”

 

 

Sohrab Bararia, partner — indirect tax at Grant Thornton Bharat, echoed this. “In the immediate term, margins could face pressure as companies pass on most of the tax benefit to buyers, limiting their pricing power. However, improved volumes and better capacity utilisation are expected to cushion profitability,” he said.

 

Cement demand is typically inelastic to prices, but the cut will lower retail prices by ₹25–30 per bag. The all-India average stood at ₹372 per bag in August.

 

JM Financial noted: “In the near term, the benefit will need to be passed on to customers. However, we view the move as structurally positive, supported by gradually improving demand and the industry’s ability to sustain price hikes.”

 

Akshay Shetty, an analyst at Mirae Asset Sharekhan, observed: “The impact on demand will be marginal. Growth will continue to be driven primarily by government and private capital spending.” While near-term margins may be squeezed as benefits are passed on, higher volumes over time could offset this, he said. 

 

Jefferies flagged industry pricing as a key monitorable. “Given the sector’s volatile pricing record in the past, we believe pricing flow-through to profitability could improve in the medium term.”

 

Before the cut, companies had planned price hikes but faced dealer resistance amid muted demand. With immediate implementation, they will need to wait for demand recovery. 

Khushbu Lakhotia, director of India Ratings & Research, said, “Our near-term cement demand forecast stays at 5–7 per cent YoY for FY26, as demand pick-up may not be immediate but in the medium term. However, lower consumer prices could drive upgrades to premium brands, aiding tier-1 players.”

 

Anand Kulkarni, director, Crisil Ratings, added that the rate cut alone may not materially lift demand. 

 

Analysts at PL Capital added that lower prices will support gradual demand from individual house builders, who account for 30–32 per cent of volumes. Cement makes up 12–14 per cent of standalone house construction costs, making the benefit more visible in this segment.

 

Industry leaders with surplus capacity and strong rural networks — such as UltraTech Cement, ACC, Ambuja Cements, JK Lakshmi Cement, Ramco Cements, and Birla Corporation — are seen as better placed to benefit if demand picks up.

 

Dharmender Tuteja, chief financial officer of Dalmia Bharat, called the move “a very positive step, both for consumers and industry. It will set in motion a virtuous cycle of creating higher purchasing power and spurring cement demand”. He added that affordability gains may also shift demand towards premium categories.

 

Infrastructure players also see benefits.

 

“By collapsing multiple slabs into a simplified 5 per cent and 18 per cent structure, the government has reduced ambiguity and ensured smoother compliance. This will be particularly beneficial for long-gestation projects such as railways, where predictability and cost efficiency are key to planning and execution,” said Indrajit Mookerjee, vice-chairman and executive director at Texmaco Rail & Engineering.

 

For his company, the change strengthens supply chain integration, lowers input cost pressures, and enhances financial clarity. “Though businesses may face temporary challenges like stock revaluation and refund adjustments, the long-term gains far outweigh the transitional issues. We see this as a strong signal of the government’s commitment to ease of doing business and India’s ambition to create world-class transport and infrastructure solutions,” Mookerjee added.

 

Former National Highways Authority of India chairman N N Sinha agreed. “The rate cut will reduce the final material tax burden for infrastructure by about 10 per cent. Such savings will make projects more viable, accelerate execution, and boost participation in public-private partnerships,” said Sinha, who now heads Rodic Digital & Advisory.

 

He added that reduced tax pressure will limit the incentive for informal procurement, strengthening transparency and compliance. “With simplified tax structures, we can better track investments and reduce reliance on informal procurement channels, enhancing transparency across the sector.”

 

On input costs, Jefferies noted that while GST on coal has been raised from 5 per cent to 18 per cent, the ₹400 per tonne clean energy cess has been scrapped. Since the higher GST is available as an input credit, the net effect is neutral to slightly positive. The new structure could also release working capital.

 

However, brokerages flagged one downside: companies availing themselves of state GST (SGST)-linked incentives in Rajasthan, Punjab, Bihar, Madhya Pradesh, Uttar Pradesh, and Maharashtra will see benefits reduced as SGST drops from 14 per cent to 9 per cent. “The total incentive quantum will decline, reducing the overall benefit these firms receive,” said Raghav Maheshwari, analyst at Equirus Securities.