Realty developers urge govt to reconsider proposal to bring FSI, additional FSI under GST

Indian real estate developers are worried. A proposed 18% GST on floor space index could increase housing prices. The developers' body, CREDAI, warns of a 7-10% price hike. This impacts affordability and the 'Housing for All' mission. CREDAI says the tax will hurt both supply and demand. A GST council meeting will discuss the issue.

Property developers across the country have approached the government to reconsider the proposal of charging 18% Goods & Services Tax (GST) on floor space index—permissible development on a plot--and additional FSI charges paid to local authorities for real estate projects.

Realty developers’ body CREDAI has written to the finance minister Nirmala Sitharaman urging a review of the proposal as the move would result in a substantial incremental impact on project costs, pushing housing prices up by around 10% across various property markets of the country.

“FSI/ additional FSI charges constitute a significant part of the project cost, and the proposal to impose 18% GST on such charges could prove to be counterproductive and act as a deterrent to housing supply and demand, owing to additional financial obligations and increasing housing prices as a direct consequence. We strongly request and recommend to the Government to keep the FSI charges exempt from GST,” said Boman Irani, president, CREDAI.

Any retrospective or prospective charges, according to him, could destabilize the financial foundations of numerous projects, hampering the ability to facilitate timely possession by developers.

The 55th GST Council meeting is scheduled to be held on Saturday in Jaisalmer, Rajasthan.

According to developers, imposing GST on these charges, would affect not just housing demand but also supply as it would raise significant economic and viability concerns.

The developers' body argued that retrospective GST clarification on such payments would impose significant unforeseen liabilities, disrupting the financial plans of ongoing and completed projects.

"Affordable housing is already burdened by rising raw material costs. Imposing GST on FSI premiums will further escalate development costs, making it economically unviable to construct affordable housing projects. The "Housing for All by 2024" mission could face setbacks as homebuyers will see an average increase of 7%-10% in property prices,” CREDAI said in a letter to the finance minister.

The resulting financial pressures could potentially lead to stalled developments and jeopardize the financial security of homebuyers invested in these projects, it said.

The industry, according to CREDAI, is already burdened with rising raw material costs, and such additional charges will make affordable housing projects economically unviable, potentially pushing the prices upwards by 7-10% and directly impacting the purchasing power of the middle-class segment – which constitutes 70% of total homebuyers.

Additionally, developers are also excluded from claiming input tax credit (ITC) on GST and this move will further accrue costs and lead to double taxation, increasing prices as a direct consequence.

According to CREDAI, the 2017 notification states that services provided by central or state governments, local authorities, or governmental bodies related to functions under Article 243W of the Constitution are exempt from GST or not considered as supply of goods or services, and therefore, GST is not applicable. Article 243W outlines municipal powers, including urban planning, land use regulation, building construction, and slum improvement.

Therefore, provision of FSI and levy of various charges and fees fall within the functions envisaged in the twelfth schedule of the constitution thereby excluding the same from levy of GST.

To avoid any adverse impact on housing demand, supply, as well as on the ripple effect on the Indian economy, CREDAI has urged the government to maintain the ongoing status quo and keep FSI charges outside the scope of taxability.