The goods and service tax is an indirect tax that is levied on the sale of goods or services in the country by the Indian government.
You have to pay GST if you purchase a flat or apartment from an unregistered dealer. If that particular deal or transaction is canceled, you will be eligible for a GST return or a refund in simpler terms.
In the initial agreement to sell, the terms and conditions of refunds must be mentioned so that there is no room for misunderstanding if a deal falls through.
In the 48th GST Council Meeting, the Central Board of Indirect Taxes and Customs issued Notification No. 26/2022 CT, which introduced a new feature for unregistered buyers to claim a GST return that they have paid on flats (canceled) within the required time frame.
As a result, depending on when you decide to cancel the contract to buy a property, you can now request a refund of the GST that you paid from the developer or the government.
Workings of the mechanism
Let's say a buyer signs a contract with a builder to purchase a house that is still being built.
He consistently pays the developer the installment amount plus the applicable GST. Within the predetermined deadlines, the developer deposits the GST with the government.
After the construction is finished, it is possible that the developer will not provide certain services as outlined in the contract.
In this instance, the builder is required to reimburse the homebuyer for the cost of the services rendered. At this point, the unregistered dealer of the apartment is liable for a GST refund.
The developer will reimburse the buyer for any services he did not render. The developer, however, is not permitted to reimburse the GST that was paid for such services. Before today, there was no way for individuals to get a GST refund in such circumstances.
What are the criteria to be eligible for the GST return?
- The cancellation of the real estate transaction is the first requirement for eligibility. This indicates that there should have been no property ownership transfer, and the sale agreement should have been terminated.
- GST should have been paid on the canceled real estate transaction. This indicates that the payment was due before the transaction was canceled.
- The third eligibility requirement is that an unregistered dealer should have been involved in the real estate transaction.
- The fourth eligibility requirement is that a GST refund application must be submitted within two years of the transaction's cancellation date.
There are 2 ways in which you can claim the GST return:
Return from the builder.
The supplier may issue a credit note by Section 34(1) of the Act if products, services, or both are returned, whereas Rule 53(1A) of the Act specifies how such a credit note must be issued. If the unregistered dealer purchases the flat from a buyer in a particular financial year and has paid in full along with the GST, the contract is canceled in the following financial year. Still, before November 13th, the builder must issue a credit note and reimburse the unregistered buyer for the GST amount. The builder also has to make a note of this transaction in his accounting books.
Return from the government.
Unregistered dealers have the option to request a refund of the GST amount from the government in cases where an unregistered buyer enters into a contract to buy a flat in any financial year by paying the purchase price plus GST, and the contract is canceled in the following financial year but after November 13. A standard Agreement to Sell for a unit, apartment, or building that is still under construction contains a language that states that any taxes paid by the Developer to the authorities will be forfeited as a non-refundable fee in the event of any default by the buyer. As was previously said, one method to avoid this predicament is for the Developer/Builders to issue a credit note. The builder can, however, request a refund under Section 54 and return the GST paid to the unregistered person if the deadline for the provision of such a credit note has passed.
Steps for filing of return GST
- Step 1: The first step is gathering all the relevant documents related to your purchase of the flat. This includes the purchase receipt, cancellation agreement, etc. These are all documents that will be verified in the process.
- Step 2: An unregistered buyer will need to get their temporary registration done from the online portal. You may need to give your Aadhar or pan details on the portal.
- Step 3: During registration, make sure that the state or Union Territory chosen matches the builder's registration status about the invoice for which a refund is being requested.
- Step 4: Properly calculate the amount of GST you have paid for the transaction, as you are only liable to get a refund on the amount you have paid.
- Step 5: Give the bank account information in the name of the unregistered dealer based on their PAN so that the refund can be issued to this bank account.
- Step 6: Complete the Aadhar authentication following all the prescribed CGST rules.
- Step 7: Within two years of the transaction's cancellation date, you must apply for a GST refund to the GST department. Form GST RFD-01 should be used to apply. Make sure you choose the "unregistered dealer" category on the GST portal.
- Step 8: You will then need to attach all the required documents with statement 8 while filing the return. The details of the documents required are listed below.
- Step 9: After you have applied, the government will process the application and verify all the documents. You will need to wait patiently, as it may take a few weeks. The money will be credited to your bank account if the government approves the refund.
This is a long process and involves some steps requiring specialized accounting knowledge.
Filing some documents can also be a tedious process that may take up much of your time.
Especia provides professional services and employs people with specialized accounting knowledge to make the entire process easy and worry-free for you.
- A declaration includes information about the invoice for which the refund is requested. These specifics must include the invoice number, date, taxable amount, amount of tax paid, and payment information.
- Copy of such an invoice, proof of payment paid to the developer, and copy of the contract signed with the developer to buy the flat.
- Letter from the builder canceling the flat
- A statement detailing the money the builder made after the flat purchase was canceled.
- A document signed by the builder certifying that he has paid the tax due to the government on the invoice the unregistered dealer is requesting a refund on, that he has not adjusted his tax liability or returns by issuing a credit note against this invoice, and that he will not request a refund of tax on this invoice in the future.
Overall, the new amendments introduced by the government are very beneficial to the taxpayer and save them from losing their money on canceled transactions.
But even though the necessary mechanisms have been put in place, getting the GST to return on a canceled flat is still a long and tedious process.
It is always recommended to employ the services of a professional to get this done.
Especia employs professionals with specialized accounting knowledge in accounts who will help you complete the process without any hassle.
They will be involved in every step of the process and will make sure that you get the result.
FAQs related to How to Claim a Refund of GST on Cancelled Flat or Real Estate Property by an Unregistered Dealer
1. How long does it take to receive a GST refund for a canceled real estate transaction?
According to the complexity of the situation and the supporting documentation, the length of time it takes to receive a GST refund for a canceled real estate transaction may vary. The wait time for the refund can range from weeks to months.
2. Can I claim a refund of GST on a canceled real estate transaction with a registered dealer in the same way?
The process for claiming a refund of GST on canceled real estate transactions with a registered dealer may be different.
3. Is it mandatory to claim a refund of GST on canceled real estate transactions with an unregistered dealer?
Claiming a GST refund on canceled real estate transactions with an unregistered dealer is not mandatory.
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