Builders must refund GST in case buyers cancel flats
Builders will have to refund GST paid by homebuyers in cases where they did not to go ahead with the purchase of flats and cancelled the booking during the last financial year ended on March 31, 2019, the tax authorities clarified on Wednesday.
The builders in turn will be allowed to avail credit adjustment from the tax department for such refunds. The clarification has been incorporated in the FAQ (frequently asked questions) released by the Central Board of Indirect Taxes and Customs (CBIC) on the real estate sector.
The FAQ has been issued to explain the migration provision, which permits real estate developers to shift to a 5 per cent GST rate for residential units and 1 per cent for affordable housing without the benefit of input tax credit (ITC) from April 1, 2019.
AS far as ongoing projects are concerned, builders have been given the option to either continue in the 12 per cent Goods and Services Tax (GST) slab with ITC (8 per cent for affordable housing), or opt for 5 per cent GST rate (1 per cent for affordable housing) without ITC.
The FAQ states that a developer will be able to issue a 'Credit Note' to the buyer as per provisions of Section 34 in case of change in price or cancellation of booking.
Developer shall be able to take adjustment of tax paid in respect of the amount of such Credit Note, the FAQ said. Citing an example, it said that a developer who paid GST of Rs 1.20 lakh at the rate of 12 per cent in respect of a gross amount of booking of Rs 10 lakh before April 1, 2019, shall be entitled to take adjustment of tax of Rs 1.20 lakh upon cancellation of the said booking on or after April 1, 2019, against other liability of GST.
The refund will neutralise the tax burden which customers may face in the event of cancellation of old bookings. The FAQ further said that once a real estate developer opts for either the old GST taxation regime or the new one for ongoing projects manually with the jurisdictional commissioner, he will not be permitted to modify it.
With regard to purchase of land from owner by the developer commonly termed as Transfer of Development Right (TDR), the FAQ said GST would not apply on agreements entered into on or after April 1, 2019.
However, for TDR agreements entered into prior to April 1, 2019, the developer will not be able to claim credit for the GST already paid.
TDRs were taxed at 18 per cent in the GST regime. The FAQ further states that all towers registered as different projects under RERA will be treated as distinct projects, for which the builder will have to maintain separate books of accounts.
In case a real estate developer has collected 12 per cent GST from home buyers beginning April 1, 2019, but later opted for 5 per cent rate, the builder will have to refund the extra tax (7 per cent) collected to the home buyer.
The FAQ, however, did not clearly spell out whether the 7 per cent tax refunded by the builder will be adjusted against his GST liability.
Real estate companies have been given time till May 10 to communicate to their respective jurisdictional officers whether they want to continue with the old GST rates with input tax credit, failing which they will be deemed to have migrated to new tax rates.
PwC India Partner and Leader (Indirect Tax) Pratik Jain said developers need to carefully evaluate as to which scheme is more efficient and clearly communicate to the customers accordingly.