Builders will have to refund GST paid by home buyers in case he cancels the flat booked in the last fiscal year and will be allowed to avail credit adjustment for such refunds, the tax department has said. This clarification forms part of the FAQ released by the Central Board of Indirect Taxes and Customs (CBIC) on the real estate sector.
FAQ has been issued to clear the air over the migration provision, which permits the real estate players to shift to 5% GST rate for residential units and 1% for affordable housing without benefits of input tax credit (ITC) from April 1, 2019. For all the ongoing project builders have a choice to continue with 12% GST slab with ITC 8% for affordable housing, or opt for 5% GST rate with 1% for affordable housing without ITC.
The FAQ said 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.
Example to clear all your doubts, A developer who paid GST of Rs 1.20 Lakh at the rate of 12% in respect of a gross booking amount of Rs. 10 lakh before 1st April 2019, will be entitled to take adjustment of tax that is Rs. 1.20 lakh upon cancellation of the booking on or after April.
AMRG & Associates Partner Rajat Mohan said “this clarification though seems to have legal over-reach but would definitely help neutralize 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 the either old GST taxation regime or the new one for ongoing projects manually with the jurisdictional Commissioner, he will not be permitted to modify it.”