The Indian cement industry holds the position of the world's second-largest producer, trailing only China. With the Indian government's strong emphasis on infrastructure development, affordable housing, and road construction, as outlined in past budgets, the cement sector anticipates significant growth. A critical question, however, is how the implementation of the Goods and Services Tax (GST) influences this projected expansion.

A key adjustment saw the GST rate on cement reduced to 18% from 28%, effective September 22nd, 2025. This change, which includes Portland, aluminous, slag, super sulphate, and similar hydraulic cements, was officially announced by the CBIC. This reduction is anticipated to potentially lower the cost of building or purchasing homes.

Taxation Before GST Implementation

Prior to the introduction of GST, the tax structure for cement was notably intricate. It involved diverse rates and specific excise duties based on cement type, whether supplied in bulk or packaged form, and its intended use (industrial or trade). The cumulative effective tax rates, including excise and Value Added Tax (VAT), typically ranged from 24% to 25%.

GST's Influence on the Cement Sector

Until September 21st, 2025, cement was subject to a 28% GST, which meant higher costs for the infrastructure industry. However, from September 22nd, 2025, the GST rate on cement was lowered to 18%, as formally announced by the CBIC on September 17th, 2025. This represents a positive development for the construction industry due to the reduction in the tax burden.

Specialized cements like refractory cement, mortars, and concretes, primarily utilized in industrial furnaces and large ovens, are taxed at 18%. Cement-bonded particle board has a 12% tax rate.

The primary raw materials for cement production are limestone, coal, and electricity. Their respective tax rates are:

• Limestone: 5%
• Coal: 5% (a reduction from the previous 11.69%)
• Electricity: Not under GST purview.

The royalty payments made by cement companies to state governments for quarrying limestone remain outside the scope of GST. Similarly, the clean energy cess levied on coal is not eligible for input tax credit, as it was not subsumed under GST. Consequently, these two factors continue to contribute to cement production costs, just as they did before GST.

Advantages of GST for the Cement Industry

The GST regime offers several benefits that are expected to streamline operations and reduce costs for the cement industry.

Improved Warehousing Efficiency

Cement manufacturers can anticipate a significant boost in supply chain management under GST. Historically, companies maintained numerous warehouses across different states to circumvent Central Sales Tax (CST) and state entry taxes. These facilities often operated below their full capacity, leading to operational inefficiencies. Under GST, cement companies, much like other sectors, are expected to consolidate their warehousing operations. This strategic consolidation will enable them to establish warehouses in optimal locations, such as central hubs, thereby achieving operational economies of scale.

Reduced Transportation Expenses

Most cement manufacturing plants are situated close to limestone quarries. However, the demand for cement spans across India, leading to high transportation costs from manufacturers to buyers. With the impending reforms in the logistics industry due to GST, transit times are projected to decrease as vehicles will spend less time at checkpoints. This efficiency gain will translate into lower transportation costs, directly benefiting the cement industry.

Simplified Tax Structure

Previously, cement manufacturers faced a complex array of excise duties. Different rates and specific duties applied based on the type of cement, its packaging (bulk or packaged form), and its end-use (industrial or trade). This fragmented system will be replaced by a single, unified GST rate. This simplification significantly reduces compliance burdens and overall complexity for the industry.

The combined effect of these factors is expected to lower operating costs for the cement industry in the long run. However, whether these cost reductions translate into lower prices for end-consumers depends on cement companies passing on their savings. Initially, it is anticipated that cement prices may temporarily increase after the new GST rate is implemented, which could also lead to higher costs for infrastructure and housing projects that heavily rely on cement.