GST Refund Now Available To Buyers On Cancellation Of Under-Construction Flats

Recently Govt had announced in the 48th GST council meeting held on December 17, 2022, that “there is no procedure for a claim of refund of tax borne by the unregistered buyers in cases where the contract/ agreement for the 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 CGST Rules, 2017, along with the issuance of a circular, to prescribe the procedure for filing an application of refund by the unregistered buyers in such cases.”

This is a big relief for lakhs of homebuyers who had cancelled their bookings of under- constructions flats/houses and could not get a refund from their builders since the time limit for issuance of GST credit note was expired hence builders were not willing to give a refund of GST paid by homebuyers. For example – If a homebuyer has booked a flat of ₹1 crore on March 1, 2022, and paid GST on the same at the rate of 5% of ₹ 5 lakh. Now, due to some reason, the homebuyer cancelled the booking on December 15, 2022. In this case, since the time limit for issuance of GST credit notes for FY 21-22 expires on November 30, 2022, therefore the builder would not be able to issue GST credit for the above cancellation and hence he will not give GST refund to the homebuyer. However, now as per the recent decision, such homebuyers will be able to apply for GST refund directly from Govt as per the guidelines mentioned in Circular 188/20/2022 dated 27.12.2022.

Key points of the circular to note are as follows:

  • The circular has clarified that where the time period for issuance of credit note under GST has expired, only then the unregistered buyer can file a refund application. If such a period is not expired, then the builder /developer shall issue a GST credit note and refund the GST amount to the homebuyer.
  • The procedure for filing the refund application is notified as below:

– A new functionality is introduced in the GST Portal which allows the unregistered person to take a temporary registration in the same state of registration as that of the respective builder/developer by providing PAN, AADHAR (for Authentication) and Bank Details (in which refund in sought) and apply for a refund under the category “Refund of Unregistered persons” in Form RFD-01.

– The documentary evidence to be furnished along with the refund application to establish that refund is due to the applicant. This comprises:

i. A statement containing the details of invoices viz. number, date, value, tax paid and details of payment to the supplier along with copies of invoices and proof of payment

ii. Copy of agreement/contract entered with the builder/developer

iii. Letter issued by the builder/developer for cancellation/termination of agreement or contract for the supply of service, details of payment received from the builder/developer against such cancellation/ termination along with proof.

iv. Certificate issued by the builder/developer to the effect that he has paid the taxes to the Government in respect of the invoices on which refund is being claimed by the homebuyer, and that he has not adjusted the tax amount against his tax liability by issuing credit note and has neither claimed nor will claim a refund of the tax involved.

  • Refund amount not to exceed the total tax amount declared on the invoice in respect of which refund is being claimed. In cases where the amount paid back by the builder/developer at the time of cancellation of booking is less than the amount paid by the homebuyer at the time of booking; then only the proportionate amount of GST involved in such amount paid back by the builder/developer shall be eligible for a refund.
  • The last date for filing the refund application would two years from the date of issuance of the letter of cancellation of the contract/ agreement for the flat/house by the builder/developer.

This is a welcome step taken by Govt. which will not only provide relief to the numerous homebuyers but to builders/developers as well since their relationship with homebuyers was deeply affected due to their inability to pay back the GST portion in the event of cancellation of bookings. This new facility shall regularise the sector and enhance trust and security in the minds of homebuyers. In a way, it is a win-win situation for all the stakeholders.

CA Mannu Kashliwal

Mannu Kashliwal is a practicing Chartered Accountant in Guwahati. He is currently a Designated Partner of Hiregange and Associates LLP and heads the North-East operations of the firm. He is an author, speaker and frequently uploads YouTube videos on the topic of GST.

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