Ahmedabad: As real estate developers continue to receive notices to pay 18% GST on floor space index charges paid to local authorities, Credai has written to the finance ministry, saying that such burden on developers will spill on to buyers. Credai feels imposing GST on FSI could lead to a 10% increase in property prices across the country. It has added that real estate sector has no provision of input tax credit (ITC). The GST Council will meet on Satuday and is likely to take a decision on the matter.
In the letter, Credai president Boman Irani said that decision with retrospective effect will burden real estate developers with a enormous and unforeseen liabilities and disrupt financial and cost plannings of ongoing and completed 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’,” the Credai letter said.
‘The industry is already burdened by rising raw material costs, and 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 the total home buyers. Additionally, developers are also excluded from claiming ITC on GST, which will further accrue costs and lead to double taxation, increasing prices as a direct consequence,’ Credai stated.
Credai officials called for projects under Pradhan Mantri Awas Yojana and other affordable housing schemes to be exempt from GST.
Rahul Patel, a chartered accountant, said, “Notification No. 14/2017-Central Tax (rate) represents a specific mechanism embedded within the framework of the GST law. This mechanism was designed with the express intention to keep certain activities outside the ambit of GST, which included activities undertaken by local authorities as part of their constitutional responsibilities and obligations.”
He added, the underlying objective of this notification is to alleviate the financial burden of taxation on such activities so as to maintain the sanctity of constitutional functions. “Regulatory actions carried out by local authorities in relation to urban planning, including but not limited to the imposition of restrictions on the floor space of buildings and the recovery of deterrence charges in the form of floor space index (FSI) or additional FSI, are inherently linked to the essential functions entrusted to these authorities under the 12th Schedule of the Constitution of India. These activities fall squarely within the ambit of ‘urban planning and building construction regulations,’ which are fundamental responsibilities of local authorities. The charges for FSI should not be brought to taxability by way of clarification or amendment in law,” he said.