The real estate body argues that charging GST on FSI would create substantial cost burdens for developers, ultimately impacting both the demand and supply of housing. CREDAI warns that such a move, whether applied retrospectively or prospectively, could exacerbate financial pressures in an already struggling sector. This, in turn, could lead to stalled projects and threaten the financial security of homebuyers.

The industry is already grappling with rising raw material costs, and the proposed GST on FSI charges could make affordable housing projects financially unviable. CREDAI stresses that the added tax burden would push prices further, especially affecting the middle-class segment, which constitutes 70% of homebuyers. Additionally, real estate developers are excluded from claiming Input Tax Credit (ITC) on GST, which would lead to further financial strain and double taxation.

CREDAI further asserts that the legal framework surrounding this issue should exempt FSI charges from GST. Citing notifications 14/2017 and 12/2017, CREDAI points out that services related to urban planning and town regulation by local authorities, including FSI, fall under the purview of Article 243W of the Constitution, which exempts them from GST.

Boman Irani, President of CREDAI, expressed his concerns, stating, “FSI/Additional FSI charges constitute a significant portion of project costs. Imposing GST on these charges could be counterproductive, leading to higher housing prices and dampening both housing supply and demand. We strongly urge the Government to keep these charges exempt from GST, as any tax imposition—retrospective or prospective—could destabilize ongoing and future real estate projects.”

CREDAI has called for the Government to maintain the current status quo, urging that FSI charges be kept outside the scope of taxation to prevent adverse effects on housing affordability, demand, and the overall economy.

Also Read: CREDAI-MCHI Launches Exhibition to Streamline Redevelopment in Mumbai

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Badal Yagnik, Chief Executive Officer of Colliers India, explained, “While rise in prices of key construction materials was relatively modest over the last year, labour costs have been driving the overall cost of construction upward. With labour accounting for more than one-fourth of overall construction cost, a 25% annual rise in labour costs has stretched construction budgets and impacted operational expenses.” This increase in labour costs, alongside the growing need for skilled workers, has added significant pressure on developers.

The residential segment has seen the sharpest increase, with construction costs rising by 11% in the past year, as demand for higher-quality homes and amenity-rich gated communities grows. According to Vimal Nadar, Senior Director and Head of Research at Colliers India, “Despite rising construction cost across real estate segments, the commercial and industrial & warehousing segments have witnessed robust new supply during 2024. For instance, the Indian office market saw 37 million square feet of new completions in the first nine months of 2024, while the industrial & warehousing segment saw about 22 million square feet of new supply.”

For homebuyers in Tier 1 cities, the impact will be clear: higher prices for new homes as developers adjust to the rising cost pressures. Developers are reassessing budgets, optimizing supply chains, and investing in technology and automation to manage costs. However, the increase in construction costs is likely to push home prices higher, impacting affordability and potentially delaying plans for first-time buyers. The adoption of sustainability measures and the circular economy in construction may help improve efficiency in the long term but will not immediately ease cost pressures for buyers.

Also Read: NAREDCO Maharashtra NextGen Unveils Excelerate 3.0: A Vision for Innovation in Construction

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