CREDAI expresses concern over proposed 18% GST on Floor Space Index premiums

The proposed GST could make homeownership more expensive for middle-class families, undermining the government’s vision of inclusive housing, say the CREDAI Visakhapatnam chapter office-bearers
| Photo Credit: File photo: K.R. DEEPAK

The Confederation of Real Estate Developers’ Associations of India (CREDAI) has expressed deep concerns over the government’s proposal to impose an 18% Goods and Services Tax (GST) on Floor Space Index (FSI) and additional FSI premiums. This move, slated for discussion at the upcoming GST Council meeting, is feared to significantly impact affordable housing and drive up property costs.

In a letter addressed to Union Finance Minister Nirmala Sitharaman and key officials, including Sanjay Kumar Agarwal (Chairman of CBIC), Shashank Priya (Member, GST & Legal), and Vivek Ranjan (Member, Tax Policy), CREDAI, highlighted the potential cascading economic consequences of the proposed tax.

CREDAI Visakhapatnam chapter office-bearers, including chairman K.S.R.K. Raju, president V. Dharmender and secretary V Sreenu, voiced their concerns, highlighting the dual burden on developers and buyers due to the inability to claim Input Tax Credit (ITC) on construction materials and GST paid on FSI premiums, which has resulted in increased costs.

The proposed GST on FSI premiums, they warned, could further escalate property prices by 7-10%, jeopardising affordable housing projects. Moreover, the broader implications for the sector and homebuyers were highlighted.

“The proposed GST could make homeownership more expensive for middle-class families, undermining the government’s vision of inclusive housing,” they cautioned, adding that it could potentially slow down the real estate sector, a major contributor to India’s GDP and employment.

To mitigate the potential negative impact, the CREDAI has suggested several measures, including reclassifying FSI premiums as government-granted instruments rather than commercial services, enabling developers to claim Input Tax Credit (ITC) on GST paid for construction materials and FSI premiums, ensuring future GST clarifications are applied prospectively to avoid retrospective taxation, and exempting affordable housing projects under the Pradhan Mantri Awas Yojana (PMAY) from the GST to enhance housing affordability.

Boman Irani, National President of CREDAI, also urged the government to reconsider the proposal. “Housing development should not be burdened with additional taxes, especially in the absence of ITC,” he emphasised.

As the GST Council prepares to deliberate, the real estate industry is closely monitoring the situation. The outcome of this decision will significantly impact the future of housing in India, determining whether affordable housing remains accessible to millions or becomes a distant dream, he added.