GST law may be amended to allow refund after flat purchase cancellation

Homebuyers may soon be able to claim GST refund directly from the government on cancellation of under-construction properties rather than going to the developer concerned.

If recommendations made by the GST council in its 48th meeting on December 17, 2022, are accepted, a mechanism would be put in place to allow unregistered entities claim refund on property purchase cancellation. This would be true even after the expiry of the time limit for issue of credit note.

“There is no procedure for claim of refund of tax borne by the unregistered buyers in cases where the contract/ agreement for supply of services, like construction of flat/house and long-term insurance policy, is cancelled, and the time period of issuance of credit note by the concerned supplier is over. The council recommended amendment in the CGST Rules, 2017, along with issuance of a circular, to prescribe the procedure for filing application of refund by the unregistered buyers in such cases,” the government said in a statement after the conclusion of the 48th GST Council meet.

Homebuyers in India are not required to register themselves under GST law only for the purpose of property purchase and GST payment on this purchase unless their income-generation make it incumbent upon them to do so. As a result of this, majority of buyers in India are not GST registered entities. As a result of this, they are not able to claim refund of the GST paid at the time of under-construction property purchase.

Under the existing rules, homebuyers in India have to pay 1% GST on purchase of affordable under-construction homes and 5% GST on under-construction homes that don’t fall in the affordable category.

Suppose you bought an under-construction property worth Rs 1 crore in March 2022 and paid Rs 5 lakh as the GST. For some reason, you had to cancel this deal in December 2022.

According to the Finance Bill 2022 introduced in Budget 2022, the time limit for issue of credit note on purchase of homes in India is November 13 after the end of the financial year in which the purchase was made.

Since the financial year in which you bought the property lasted between April 1, 2021, and March 31, 2022, and the time limit for issue of credit note expired on November 13 2022, you will not be able to claim the Rs 5 lakh paid as GST on flat purchase.

With the changes in law, buyers may now be able to claim this refund from the government directly without having to approach the builder about this.

In 2019, the income tax department had said builders would have to refund GST paid by buyers in case they cancel the flat booked in the last fiscal, adding that the buyer would be allowed to avail of credit adjustment for such refunds. However, builders refuse to refund the tax components paid by the buyers.


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