Ahmedabad: Ahead of the forthcoming GST Council meeting, Credai Gujarat has submitted a representation to state govt urging it to take up key taxation issues impacting housing delivery, demanding clarity on GST applicability to FSI and additional FSI purchased from urban local bodies.The developers’ body said field tax offices have been raising 18% GST demand notices on charges paid to municipal corporations and urban development authorities for FSI and additional FSI, even though these are levied as part of statutory town-planning functions.Credai argued that functions entrusted to municipalities under Article 243W of the Constitution — read with Section 7(2)(b) of the CGST Act and Notification 14/2017 — are treated as neither supply of goods nor supply of services, and therefore should not attract GST.“Despite the statutory framework that places municipal planning functions outside GST, members are receiving notices demanding 18% tax on FSI and additional FSI charges, creating avoidable uncertainty and project delays,” said a Credai-Gujarat office-bearer.The representation also sought reforms to the definition of affordable housing under GST. Credai-Gujarat proposed adopting RERA carpet area as the sole qualifying criterion, instead of the current dual test of area and a price cap of Rs 45 lakh. It recommended thresholds of 70 sq m in notified metropolitan cities, 90 sq m in major urban centres with population above 10 lakh, and 120 sq m in other areas, with a project qualifying if at least 90% of units meet the criteria.The association said that rapid urbanisation will require a significant addition to housing stock, and argued that tax policy should prioritise supply expansion, especially in the affordable segment. It cited a widening mismatch between demand and supply in affordable housing and said states bear the brunt of shortages through unplanned settlements and stressed civic infrastructure.Another key demand was a reduction in the GST rate on works contracts used in housing construction. While the headline GST on home sales is 1% for affordable housing and 5% for other residential units, Credai said developers pay 18% GST on works contracts and multiple inputs without input tax credit, embedding taxes into costs.“Without input tax credit, the 18% works-contract levy becomes a direct cost that ultimately burdens homebuyers; a reduction to 12% — at least for affordable housing — will support demand and improve viability,” the representation said.Credai Gujarat urged the state to support these proposals in the GST Council, stressing that higher housing volumes would expand stamp duty collections, property tax bases, and municipal user charges over time.
