CREDAI urges govt to reconsider 18% GST imposition on FSI charges, warns of increase in housing prices

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The Confederation of Real Estate Developers' Associations of India (CREDAI) has strongly opposed the proposal to levy an 18 per cent Goods and Services Tax (GST) on Floor Space Index (FSI) and Additional FSI charges imposed by local authorities for real estate projects.

In a letter addressed to the Finance Minister Nirmala Sitharaman, CREDAI urged the central government to reconsider the move, warning that it could lead to a significant increase in housing prices and adversely affect both supply and demand in the real estate sector.

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According to CREDAI, imposing GST on FSI charges - whether retrospectively or prospectively - would escalate project costs by as much as 10 per cent, pushing up housing prices across various regions of India.

The industry body claims that the additional burden would make affordable housing projects economically unviable, exacerbating the housing affordability crisis and potentially affecting the purchasing power of middle-class homebuyers, who make up 70 per cent of the total market.

The proposed tax on FSI charges, which are fees paid to local authorities for the additional space developers are allowed to build, could also create substantial financial pressures on developers.

CREDAI had stated that the move would not only raise construction costs but also disrupt financial planning for ongoing and completed projects.

The introduction of retrospective GST clarification, in particular, would create unforeseen liabilities for developers, putting their financial stability and ability to complete projects at risk, the real estate body said.

CREDAI warned that such uncertainty could lead to stalled developments, ultimately harming the financial security of homebuyers already invested in these projects.

Boman Irani, President of CREDAI, highlighted the severity of the potential consequences, stating, "FSI/Additional FSI charges constitute a significant part of the project cost, and the proposal to impose 18 per cent 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."

The real estate sector is already grappling with rising raw material costs, making the proposed GST levy on FSI charges an added financial burden that could further hinder the construction of affordable homes. CREDAI estimates that this could lead to an increase in housing prices by approximately 7-10 per cent, worsening the already dire affordability challenges faced by middle-income families.

Moreover, the industry body had also pointed out that developers are currently unable to claim Input Tax Credit (ITC) on GST paid for these charges, which means the imposition of tax on FSI would lead to a scenario of double taxation and it would only compound the financial strain on developers, ultimately driving up housing prices and impacting demand, the CREDAI stated.

CREDAI also referenced existing legal provisions, including Notification no 14/2017 and 12/2017, which state that services provided by central or state governments, local authorities, or governmental authorities, related to functions entrusted to municipalities, are either exempt from GST or not considered a taxable supply.