When buying an under-construction property, buyers pay Goods and Services Tax (GST) along with the booking amount. However, if the buyer cancels the booking, getting a refund of the GST can be challenging, as many builders refuse to return it.
A recent ruling by the Madras High Court in Emerald Haven Realty Developers (Paraniputhur) Pvt. Ltd. vs. S.V. Ramesh (2023) clarified that GST refunds depend on the timing of cancellation. Similarly, the Maharashtra AAR ruling in Bai Mamubai Trust (2021) provided guidance on when buyers are entitled to a refund.
Key Takeaways for Buyers:
✔ GST is applicable only on under-construction properties, not on ready-to-move properties.
✔ Cancellation timing determines whether GST can be refunded.
✔ Buyers should ensure their agreement has a GST refund clause.
✔ Act quickly before the builder files GST returns to improve refund chances.
GST Applicability on Property Bookings
| Type of Property | GST Applicability | Rate of GST |
|---|---|---|
| Under-Construction Property | GST applicable | 5% (without ITC) / 1% (affordable housing) |
| Ready-to-Move Property (with OC) | No GST applicable | NIL |
| Land Sale | No GST applicable | NIL |
If a buyer cancels the booking, the refund of GST depends on whether the builder has already filed GST returns.
GST Refund on Property Cancellations: What Buyers Must Know
| Cancellation Timing | GST Refund Policy | What Buyer Should Do |
|---|---|---|
| Before GST return is filed | Builder can adjust GST and issue a full refund | Notify builder early and demand a refund |
| After GST return is filed | Refund must be applied under Section 54 of CGST Act | Ask the builder for a credit note or apply for refund |
| After project completion (OC issued) | No GST refund applicable | Buyer cannot claim GST back |
| Cancellation charges applied | 18% GST applicable on cancellation fees | Ensure builder provides a proper tax invoice |
How Buyers Can Secure a GST Refund
✅ Check the Sale Agreement for a GST Refund Clause
- Before signing, ensure the agreement states GST will be refunded if cancellation occurs.
- The builder should be required to issue a credit note if GST has already been deposited.
✅ Act Before the Builder Files GSTR-3B
- If a buyer cancels before the GST return is filed, the builder must refund the GST.
- If cancellation happens later, the buyer must apply for a refund from the government.
✅ Request a Credit Note from the Builder
- If cancellation occurs after GST filing, a credit note helps in adjusting GST liability.
- Builders can issue credit notes until 30th September of the following financial year.
✅ Apply for a GST Refund Under Section 54
- If the builder refuses to refund GST, the buyer can apply for a refund through the GST portal.
- Required documents: Agreement copy, cancellation letter, GST invoice, and proof of payment.
Steps to Take if the Builder Denies a GST Refund
✔ Step 1: Send a written request to the builder citing GST laws and court rulings.
✔ Step 2: Request a credit note if GST has already been deposited.
✔ Step 3: File a complaint with GST authorities under Section 54.
✔ Step 4: Approach RERA or Consumer Court for unfair trade practices.
Conclusion
🔹 Buyers must carefully review their agreement before booking a property.
🔹 If cancellation is likely, act quickly before GST returns are filed.
🔹 Demand a credit note if GST is already paid.
🔹 Use legal channels like GST authorities and RERA if the builder refuses to refund GST.
Understanding GST laws can help buyers protect their money and avoid unnecessary losses in property transactions. Always ensure proper documentation and take action at the right time to secure your rights!
