GST Paid can be refund in case of Under-Construction Property if purchase deal is called off

The GST Council at its 48th meeting on December 07, made certain recommendation that will have broad consequences.

Among other things, It will benefit many homeowners, particularly those who choose to purchase residences that are still under development. Homebuyers who cancel their purchase of an under-construction property after paying the purchase price and GST will receive a return straight from the government, according to experts.

The council recommended that the GST rules be amended to allow a buyer to file an application for refund if the contract or agreement for the supply of services, such as the construction of a flat or house, is cancelled and the time period for the concerned supplier (developer) to issue a credit note has expired.

In other words, a person who buys an under-construction house and pays the purchase price and GST but decides to cancel the deal before the property is registered will receive the GST refund directly from the government if the time limit for the developer to return the amount expires.

Tax experts lauded the recommendation, saying it clears up a lot of confusion.

“Refund to unregistered persons was a sore point for long and the GST Council has finally relented thanks to the buoyancy in monthly collections. It is a huge relief for ordinary consumers who used to cancel their flat bookings or insurance policies but were not reimbursed due to a lack of provisions,” said Shailendra Kumar, chairman of the TIOL Knowledge Foundation.

GST on House Purchase

A residential complex that is fully built and has received an occupancy certificate is exempt from the levy because a completed property is neither regarded as a good nor a service.

However, you will also need to pay the GST if you are purchasing a property that is still under construction. The GST rate, however, varies depending on the type of home you are purchasing. The GST rate is 1% of the property value if you are purchasing a property that qualifies as affordable housing, compared to 5% for other projects.

Affordable housing is defined as having a price of up to Rs. 45 lakh and a floor area of up to 60 sq m in major cities and up to 90 sq m in non-metro areas.

When to pay GST and how to get a refund if a deal is cancelled?

Residential real estate projects typically take three to four years to build. GST is paid in addition to any instalment payments or lump sum payments you make for the construction. After the buyer has paid the GST, the collector (developer or builder) is responsible for paying it to the government within the allotted time.

However, if you decide to back out of the deal, you should ideally receive a refund of the amount you paid for the house as well as the GST you had already paid.