Flats & villas without GST & cancellation of Flat bookings- Latest Update

If you want to cancel a flat booking, then you have come to the right place. How smooth your cancellation process basically depends on the relationship you have with the developer. Most people do not know about the procedure for canceling an apartment reservation. This results in problems when claiming a refund. So let us discuss the Flats & villas without GST.

Flats and Villas without GST

As per existing rules for the construction and sale of flats/residential villas for construction and sale of flats/residential villas are subject to applicable GST @ 1% and 5% for affordable housing units and others. The builder is not entitled to a discount on input tax when purchasing goods or services. The value of the land may be accepted as a deduction from the total consideration as 1/3rd of such contract amount. However, these rates are applicable only in a situation where there is a build and sell agreement, where such transaction falls under the construction contractor, it will be treated as a supply of service with SAC code 995411.

However, if the builder sells such flat after obtaining the occupancy certificate from the relevant financial authorities like Corporation, Municipality, etc. ready for occupation and thereafter any contract of sale or sale deed entered into then under such circumstances shall be deemed to be a supply of immovable property which is outside the purview of GST. In short, if the builder sells the flats to the buyer after receiving such a completion certificate there is no GST in such circumstances.

If the builder refuses to refund the booking amount

In case the developer refuses to pay the reservation amount, the buyer will have to approach the state real estate regulatory authority or consumer forum for help.

If the contract is registered, the builder will forfeit the entire amount

In the scenario where the deal is registered, the builder gets the legal standing to forfeit the entire amount. Things in this sense are also stated in the contract between the builder and the buyer. The buyer would lose more than the remaining money, which may include registration fees and taxes.

What happens to the excess amount?

When a buyer books a flat and then eventually cancels it, but benefits from receiving a higher amount from the builder than what he originally paid, the extra money will be treated as capital gains in tax parlance. It was laid down by the Bombay Bench of the Income Tax Appellate Tribunal (ITAT). The Tribunal also clarified that the excess income thus earned will not be treated as long-term capital gain and will not be treated as exempt income unless the conditions of the holding period and other conditions are fulfilled.

Important things to keep in mind while canceling the flat booking

There are a few checkpoints to remember while canceling a flat booking-

• Contracts between a builder and a buyer, including a contract of sale or property allotment documents, usually contain cancellation clauses. Go through the documents in detail as the cancellation will be subject to the conditions mentioned.
• Always keep any confirmation document you receive, especially the payment slip.
• It is best to pay by check or other writable modes rather than cash.
• Any VAT or service tax paid is not refundable in the event of cancellation.
• Keep all communications in writing. Verbal assurances and promises will not hold in court if a complaint has to be filed.

Even if no contract has been signed between the builder and the buyer, you still have the right to cancel the booking and be entitled to a refund. Experts warn that the reason for canceling should be genuine, otherwise you can get into legal trouble. If there is no signed contract or agreement, it is very important to adhere to allotment sheets and payment receipts. Application forms, confirmations, or allotment sheets may also contain cancellation conditions that can be used to claim a refund from the builder.

Let’s check the new update on the cancellation of flat bookings!

During December 2022, CBIC issued Circular No. 188/20/2022 – GST dated 27 December 2022 after the 48th GST Council meeting, in which, in case of cancellation of an apartment reservation, the builder is required to pay GST even after receiving the deposit from the prospective buyer. However, if such flat booking has been canceled later, the GST portion of the advance payment may be refunded through a credit note to the customer u/s 34 of the CGST Act (i.e. before filing the annual return or on 30th November of the following financial year, whichever is earlier).

If even this deadline has expired under such circumstances circular No. 188/20/2022 dated 27-12-2022 gives directions to refund such unregistered persons directly under Section 54(8) (e) of the CGST Act. Here such an unregistered person has to get provisional registration and also file RFD-01 under the refund category for the unregistered sellers. Documents required under Notification No. 26/2022 are to be uploaded. If such a refund applies to different states, a separate temporary registration for the above refund must be made in each state. Similarly, the relevant dates for the return of the amount according to Section 54(1) are given 2 years from the relevant date. The relevant date here means the date of issue of the letter of withdrawal from the contract. If the amount refunded is less than Rs.1000/-, the amount is not eligible under this circular. The concerned officer shall verify the RFD-01 and issue the order RFD-06.

Final words

Under the provisions of the Real Estate (Regulation & Development) Act, 2016, the buyer does not become an “allottee” until the time of registration of the agreement between the builder and the buyer and thus has only limited rights. This is why the process of getting a refund would get complicated if the buyer doesn’t show due diligence when they are out booking the property.

For example, it would be a big mistake to make any payment, no matter how small, without documenting it. Ask the builder to give you a signed deposit slip. It is also strongly recommended that all payments be made to the builder through online channels so that there is a record of the transaction.