Credai Gujarat Seeks GST Clarity on FSI Purchases

Quick Summary 

• Credai Gujarat wants GST rules cleared up. The issue is GST on FSI and additional FSI charges. These are paid to municipal corporations and urban bodies. 

• Tax offices have sent 18% GST demand notices on these charges. Credai says this is wrong. 

• Credai says these charges should not attract GST at all. It points to Article 243W of the Constitution and Notification 14/2017. 

• This request comes just before the 57th GST Council meeting. That meeting is on 12 September 2026 in New Delhi. 

• Credai has also asked for two more things. One, a simpler definition of affordable housing. Two, a lower GST rate on works contracts. 

• Nothing has changed yet. These are only proposals. Only the GST Council can approve a change. 

What Is FSI, and Why Does It Get Taxed? 

FSI means the Floor Space Index. Some people call it FAR, or Floor Area Ratio. It sets the built-up area a builder can construct on a plot. Local town-planning rules decide this limit. 

A builder can build more than the basic limit. To do this, they buy extra FSI. This is called an additional FSI. They buy it from the municipal corporation or the urban development body. In Gujarat, this could be AUDA or AMC. The builder pays a fixed charge for it. This charge adds a lot to project cost. It sits next to land cost and construction cost. 

What Credai Gujarat Has Asked For 

Credai Gujarat sent a formal request to the state government. It wants three tax issues raised at the national level. Here they are. 

1. Clear GST Rules for FSI and Additional FSI 

Field tax offices are sending 18% tax demands. These are for FSI and additional FSI payments. Builders pay these to municipal bodies and urban authorities. Credai says this demand is wrong. Here is why: 

• Town planning is a government job. Article 243W of the Constitution gives this job to local bodies. 

• Section 7(2)(b) of the CGST Act backs up. So does Notification 14/2017. Together, they say a government body's core duty is not a "supply." If it is not a supply, GST cannot apply. 

• Even so, some builders still get tax notices. This creates confusion. It also raises costs and delays. 

This is not a new fight. National CREDAI raised the same point in December 2024. That was before the 55th GST Council meeting in Jaisalmer. CREDAI warned that an 18% GST on FSI could raise home prices by 10% across India. That was about the same kind of FSI charge. Now Credai Gujarat wants the state to settle it for good. 

2. A Simpler Rule for Affordable Housing 

Right now, a home must pass two tests to count as "affordable" for GST. It must meet a carpet area limit. It must also cost under ₹45 lakh. Credai wants to drop the price test. It wants only the carpet area to count. Here is its proposal: 

Read More: Carpet vs Built-up vs Super Built-up Area 

Credai also wants some flexibility. A project should still qualify if 90% of its units meet the size rule. This works even if a few units are bigger. 

3. Lower GST on Works Contracts 

Today, GST on an under-construction affordable home is 1%. For other homes, it is 5%. Both rates come with no input tax credit. This means builders cannot claim back GST paid on materials and labour. That cost still exists. It just gets hidden inside the project. Credai wants the GST on works contracts cut to 12%. This is only for housing construction. The goal is to lower this hidden cost. 

Why the Timing Matters 

This request comes at a key moment. The 57th GST Council meeting is set for 12 September 2026. It will be held in New Delhi. An officers' meeting will happen the day before. The full agenda is not public yet. So it is not known whether FSI will be on the list. 

Here is what is fact, and what is still open: 

• What has happened: Credai Gujarat has sent its request. It has asked the state to push this at the Council. 

• What has not happened: No GST rate has changed. No exemption is confirmed. No new housing rule is final. These stay as proposals until the Council decides. 

What This Means for Homebuyers in Gujarat 

Are you planning to buy a flat in Ahmedabad or Gandhinagar? Here is what matters to you right now. 

• No price change today. GST on flats stays the same. It is 1% for affordable homes. It is 5% for other homes. This FSI issue sits inside the builder's cost sheet. It does not add a new charge for you. 

• A price change could come later. If the 18% GST on FSI gets confirmed, builders may pass some cost to buyers over time. If Credai's request is accepted instead, project costs may stay steady. 

• More homes could count as "affordable." If the new carpet-area rule passes, more projects may qualify. That could mean more homes at the lower 1% GST rate. 

What This Means for Developers 

Builders in Gujarat's cities face real cost risk here. A surprise GST demand can land mid-project. By then, budgets and prices are already set. This can cut into profit on deals that are already signed. Clear rules, in either direction, would help. Builders could then price land and FSI with more confidence before they launch a project. 

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