Imposing GST on FSI Charges could Increase Housing Prices by 10% and Adversely Impact Demand: CREDAI

New Delhi, 21 December 2023: In a letter addressed to the Honourable Finance Minister, CREDAI today strongly urged the Central Government to reconsider the proposition of charging 18% GST on FSI/ Additional FSI charges paid to local authorities for real estate projects. According to CREDAI, this move would have a substantial incremental impact on project costs, further pushing housing prices up by approximately 10% across various parts of the country. Imposing GST on these charges, either retrospectively or prospectively, would also affect not just housing demand but also supply as it would raise significant economic and viability concerns.

CREDAI further claims that retrospective clarification of GST on such payments would burden Real Estate Developers with an enormous amount of unforeseen liabilities, disrupting the financial and cost planning of on-going and completed projects. The resulting financial pressures could potentially lead to stalled developments and jeopardize the financial security of homebuyers invested in these projects. Even prospective application would substantially elevate construction costs, imposing additional financial burdens on end consumers and deteriorate housing affordability issues, hindering the collective mission towards ‘Housing for All’. The industry is already burdened by 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 ITC on GST and this move will further accrue costs and lead to double taxation, increasing prices as a direct consequence.

Furthermore, the legal position in this matter is relatively straightforward, with respect to Notification no 14/2017 and 12/2017 which clearly lays down that services supplied by Central or State Governments, local authorities or Governmental authorities, by way of an activity in relation to a function entrusted to a municipality under article 243W of the Constitution will either be exempted from GST or will be treated neither as a supply of goods nor a supply of service and hence, GST will not be chargeable on the same. Article 243W lays down powers of Municipality listed under the twelfth schedule of the Constitution which contains various relevant entries amongst others including 1. Urban planning including town planning; 2. Regulation of land use and construction of buildings, 3. Slum improvement and upgradation.

Therefore, provision of FSI and levy of various charges and fees squarely 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 urges the Government to maintain the ongoing status quo and keep FSI charges outside the scope of taxability.

Boman Irani, President, CREDAI shares his remarks “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. Any retrospective or prospective charges could destabilize the financial foundations of numerous projects, hampering the ability to facilitate timely possession by developers.”