Real Estate Developers Urge Government to Reconsider 18% GST on FSI

Date: December 20, 2024
Category: GST Recent News
Read Time: 4 Minutes

Real estate developers, represented by CREDAI (Confederation of Real Estate Developers’ Associations of India), have voiced concerns about the proposed 18% GST on floor space index (FSI) and additional FSI charges paid to local authorities. They assert that this move could increase housing prices by 10%, directly affecting affordability and hindering the government’s ‘Housing for All’ mission.

Key Concerns Raised

  1. Increase in Housing Prices
    Developers warn that GST on FSI charges will significantly raise project costs, leading to a 7–10% hike in housing prices. Consequently, affordability for middle-class homebuyers, who constitute 70% of the market, would be adversely affected.
  2. Impact on Housing Demand and Supply
    The additional financial burden is likely to deter new housing developments, stifling supply in the long run. Furthermore, higher prices could dampen demand, negatively impacting economic growth and reducing housing accessibility.
  3. Retrospective GST Application
    Applying GST retrospectively would impose unforeseen liabilities on developers, disrupting financial planning for both ongoing and completed projects. This scenario might lead to stalled projects, jeopardizing homebuyers’ investments and delaying possession.
  4. Double Taxation and ITC Exclusion
    Developers are unable to claim Input Tax Credit (ITC) for GST on FSI charges, resulting in double taxation. As a result, increased costs are inevitably passed on to consumers.

CREDAI’s Recommendations

  1. Maintain Exemption: CREDAI advocates keeping FSI and additional FSI charges outside the GST scope, both retrospectively and prospectively.
  2. Avoid Housing Supply Constraints: By exempting these charges, affordable housing projects can remain viable, supporting the government’s housing goals.
  3. Constitutional Argument: Since FSI charges fall under the 12th Schedule of the Constitution, they should not attract GST.

CREDAI President’s Statement

“The proposal to impose 18% GST on FSI/Additional FSI Charges could destabilize the financial foundations of numerous projects. It would increase housing prices and act as a deterrent to supply and demand. We strongly urge the government to keep these charges GST-exempt to ensure the viability of affordable housing projects and safeguard the financial interests of homebuyers and developers alike.”

Implications

  • For Developers: Higher project costs, reduced margins, and potential delays in completion.
  • For Homebuyers: Increased financial burden, reduced affordability, and postponed project delivery.
  • For the Economy: Potential ripple effects across the housing market and broader economic activities.
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