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Homebuyers who cancel their purchase of an under-construction house after paying the purchase price and GST will receive a refund directly from the government, according to experts.
In the 48th GST Council meeting, the finance ministry stated that there is no procedure for claiming a refund of tax borne by unregistered buyers in cases where the agreement for the supply of services, such as the construction of a flat or house and long-term insurance policy, is cancelled and the time for issuance of credit note by the concerned supplier has expired.
The majority of homebuyers are not registered with tax authorities under the GST law. “The GST Council recommended the modification in CGST Rules-2017, as well as issuing a circular, to advise the procedure for filing an application for refund by unregistered buyers in such cases.”
According to the experts, it benefits consumers, such as those purchasing new homes. “For example, on March 31, a person paid Rs 5 lakh in GST on the house worth Rs 1 crore that was under construction. However, on December 17, he cancelled the agreement.
For supplies made during a fiscal year, the CGST law allows credit notes to be issued only by November 30, following the end of the previous financial year. As a result, if a flat were booked in March 2022 and cancelled in December 2022, no credit note would be issued because the cancellation occurred after the November 30 deadline.
“In contrast, under GST law, an application for a refund can be made within two years of the relevant date,” explained Harsh Shah, partner of Economic Laws Practice.
“The only other available option in this situation is to request a refund, which the supplier may do”. However, under the ‘unjust enrichment’ principle, a developer can only claim a refund if the tax is refunded to the customer.