Credai Gujarat Seeks GST Relief on FSI Charges to Reduce Housing Costs
Ahmedabad, Gujarat | September 4, 2026: Developers in Gujarat have urged the state government to seek clearer GST rules on FSI and additional FSI charges, along with tax reforms aimed at improving housing supply and reducing construction costs. Credai Gujarat has submitted its recommendations ahead of the upcoming GST Council meeting.
The developers’ body said uncertainty over GST on FSI payments to municipal corporations and urban development authorities is creating additional costs and can delay housing projects. It has also proposed changes to the definition of affordable housing and a lower GST rate on works contracts.
Developers Seek Clarity on GST for FSI Purchases
Credai Gujarat has asked the state government to clarify whether GST should apply to charges paid to municipal corporations and urban development authorities for FSI and additional FSI.
According to the developers’ body, some field tax offices have been issuing demands for 18% GST on these payments, even though FSI charges are linked to statutory town-planning functions carried out by public authorities.
Credai has argued that certain municipal functions covered under Article 243W of the Constitution, along with relevant provisions of the CGST Act and Notification 14/2017, should not be treated as taxable supplies.
The association said the conflicting interpretation is creating uncertainty for developers and can affect project timelines and overall housing costs.
Credai Proposes RERA Carpet Area for Affordable Housing
The developers’ body has also proposed changing the GST definition of affordable housing.
Credai Gujarat wants RERA carpet area to become the primary qualifying criterion instead of the existing requirement that considers both unit size and a ₹45 lakh price ceiling.
It has suggested area limits of:
- 70 sq m in notified metropolitan cities
- 90 sq m in major urban centres with populations above 10 lakh
- 120 sq m in other areas
Credai has further proposed that a project should qualify for affordable housing treatment if at least 90% of its units meet the prescribed criteria.
Tax Reform Could Support Affordable Housing Supply
Credai Gujarat said India’s rapid urbanisation will require a significant increase in housing stock, particularly in the affordable segment.
The developers’ body has argued that tax rules should support additional supply rather than increase the cost of delivering homes. It said a gap between affordable housing demand and supply can also contribute to unplanned settlements and put greater pressure on civic infrastructure.
A broader definition based on carpet area, according to the association, could allow more housing projects to qualify for favourable GST treatment.
Works Contract GST Reduction Is Another Major Demand
Credai Gujarat has also sought a reduction in GST on works contracts used for housing construction.
While GST on the sale of an under-construction affordable residential unit is generally 1% and other residential units are generally taxed at 5%, developers face GST on construction-related works contracts and various inputs without corresponding input tax credit under the applicable residential real estate scheme.
The association has proposed reducing the works-contract GST rate to 12%, particularly for affordable housing.
Developers Say High Construction Taxes Raise Home Costs
Credai said the effective tax burden on construction inputs and works contracts gets embedded in project costs when input tax credit is unavailable.
This can affect the viability of housing projects and ultimately increase the financial burden on buyers.
A lower works-contract tax rate, the association argues, could improve project economics and support demand, especially for affordable homes where buyers are more sensitive to price increases.
Clearer GST Rules Could Help Developers and Homebuyers
For developers, clarity on FSI taxation could make project budgeting more predictable and reduce the risk of unexpected tax demands during construction.
For homebuyers, the potential benefit would depend on whether lower project costs are eventually reflected in property prices.
The proposals are also relevant to Gujarat’s expanding urban centres, where rising land and construction costs are making affordable housing increasingly difficult to deliver at scale.
State Government to Take Housing Tax Issues to GST Council
Credai Gujarat has urged the state government to support its proposals before the GST Council.
The developers’ body believes that greater housing supply could generate additional government revenue over time through stamp duty, property taxes and municipal user charges.
The immediate focus, however, remains on resolving the GST treatment of FSI and reducing construction-related tax costs. Any changes will ultimately depend on decisions taken by the GST Council and the applicable tax framework.