“The resulting financial pressures could potentially lead to stalled developments and jeopardise 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’,” says the industry body.

Boman Irani, president, CREDAI, says FSI or 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 destabilise the financial foundations of numerous projects, hampering the ability to facilitate timely possession by developers.”

The industry is already burdened by rising raw material costs, which has pushed the property prices up. “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,” says CREDAI.

Jash Sandip Panchamia, Executive Director, Jaypee Infratech Ltd, also says the move could significantly escalate the cost of housing units, especially when there is no Input Tax Credit (ITC) available to developers. "Property buying already carries a substantial tax burden, including GST, stamp duty, and registration fees, which buyers must bear. Introducing an additional tax would only increase the financial strain on homebuyers."

In the Union Budget 2024, Finance Minister Nirmala Sitharaman had emphasised encouraging states to lower high stamp duties on property transactions. Panchamia urged the government to further focus on reducing overall taxes in the real estate sector. "Lowering the tax burden would not only benefit homebuyers but also boost the housing market and contribute to economic growth."

What’s legal point of view?

The legal position in this matter is relatively straightforward, says CREDAI. “Notification no 14/2017 and 12/2017 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."

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

GST on FSI

Reconsider 18% GST on FSI; it'll destabilise projects: CREDAI to FM