How is Money Refunded When a Property deal is Cancelled?

Last Updated at: February 17, 2020
10687
How is Money Refunded When a Property deal is Cancelled?
Latest news update:

In a clarification issued in 2019, the Central Board of Indirect Taxes and Customs (CBIC) stated that builders will have to refund GST paid by home buyers in case he cancels the flat booked in the last fiscal. He will be allowed to avail credit adjustment for such refunds.

 

Not all property deals go through, some deals get cancelled in mid-way due to several reasons including lack of funds, legal issues and even an untimely demise. When such agreements do not lead to the registration of the property, one doubt remains in the minds of both the parties involved- what to do with the token money. In some cases, individual sellers demand hefty token money which is then paid by the buyer. But if this deal falls through, or gets abandoned mid-way, what happens to these payments made? Here’s a look at how to process refunds if a deal doesn’t make it to the registration process.

Token Money

Treatment of such token money accepted before the finalising of a deal comes under the income tax laws. Once terms and conditions regarding the property are decided upon, some cash is sometimes exchanged as a sign of good faith between the parties involved. The amount paid varies according to the size and location of the property and also as per the terms and conditions laid out by the seller. If the seller backs out from the deal, the buyer may file for a  compensatory suit and demand that they get refunded the money they lost in the transaction.

Tax Issues

If the buyer backs out, the seller may forfeit the token money paid beforehand and in some cases decides against doing so. The buyer does not have the right to any tax benefit for the amount paid, as it comes under the capital loss bracket under tax laws. However, if the money is forfeited, it becomes the seller’s income for that fiscal year and is hence taxable. Such money comes under the bracket of income from other sources and is not taxed as capital gains though the money comes from a capital source such as property asset. Before 2014, wherein an amendment was made to the tax laws involving the deduction of money, the amount forfeited was deducted from the acquisition cost.

Get Your Property Registered

To reduce Registration charges

  1. Agree to pay for the stamp papers.
  2. Negotiate prices with the deed writers
  3. Negotiate legal fees

Refund of Stamp Duty

For most property transactions, the buyer pays some money as stamp duty, and this may be a fixed amount or maybe a percentage of the total value of the asset being bought. There are specific registration fees, and other such service charges that also need to be paid to complete a registration or property deal and such fees are decided upon by the respective state governments under whose jurisdiction the property falls. Hence the refund laws also vary from state to state regarding stamp duty.

The Maharashtra government allows you to claim a refund for the stamp duty, within six months from the date of registration and the government may deduct 1% of the stamp duty ranging from a  minimum of Rs 200 and a maximum of Rs 1,000. Such refunds may be claimed for up to two years from the date of the deal registration if it was cancelled and the buyer can stake a claim for refund within this period of time.

The refund gets approved if the seller fails to fulfil his side of the deal and hand over the property in time. The cancellation agreement should be registered under law for the refund to be accepted and approved. The buyer can get up to a maximum of 98% of the stamp duty as a refund. One is expected to attach the original agreement, and the original cancellation deed, with both being registered along with the refund application. Buyers will not get any refund on their registration fees under any circumstances.

Steps

  • Cross-check the sale deed before signing it
  • Provide a valid reason for exiting from the deal.
  • Try to shift the purchase to another property of the same builder.
  • Network with other buyers to build pressure.
  • Ask for a cancellation agreement.
  • Don’t ever pay in cash.
  • Always ask for a receipt.

Refund of GST

Booking and buying of construction property require the payment of a specified amount as the prescribed GST charge levied on the agreed value and is a fixed percentage of the market value of the property. The rate depends on the classification of the property and whether or not it is an affordable housing property or not. If a deal does not go through and gets abandoned mid-way, the seller may refund the booking amount and if GST has been collected may or may not agree to repay this amount depending on whether the builder has already deposited the credit over to the government.

In 2009, people who invested in the New Town Heights project in Gurgaon joined hands and pressurised the builder, DLF to either complete the project or hand them their refund. When a deal falls through, a buyer’s options are limited. They can choose to take the seller to court but that might take years to sort out, or they might accept their fate. Both these solutions do not in any way benefit the buyer, and this is why having a good knowledge of such refund policies come into play.

Is PAN mandatory for obtaining GST registration?

A PAN is mandatory for GST Registration despite of being an LLP, Proprietorship or a Trust. For foreigners, it is not a necessity but for non resident taxable persons it is. Understand the procedure for GST registration and GST returns here.

How does SSI/MSME help me get a loan from a bank?

For the MSMEs, banks and other financial institutions will provide funding at relatively lower rates than the same sanctioned to the normal businesses. More about Udyog Aadhar Registration.

Is it necessary to attach any documents along with the return of income?

There are certain situations when income tax authorities can call your for inquiry related to your income tax return filing. You have to provide the necessary documents to them. More on Income Tax Return Filing

Does ISO 9001 2015 require a quality manual?

The reviewed ISO 9001 would not be completely as per formality. However, it is still worth to keep the quality manual. Learn more about ISO Certification.

What is the procedure for registration of an NGO with the Income Tax Department ?

The application filed in 10 A form needs to be completed within 1 year of establishment of the NGO and send accross to the Commissioner in charge of the region of the NGO. More info on NGO Registration in india.

How is Money Refunded When a Property deal is Cancelled?

10687
Latest news update:

In a clarification issued in 2019, the Central Board of Indirect Taxes and Customs (CBIC) stated that builders will have to refund GST paid by home buyers in case he cancels the flat booked in the last fiscal. He will be allowed to avail credit adjustment for such refunds.

 

Not all property deals go through, some deals get cancelled in mid-way due to several reasons including lack of funds, legal issues and even an untimely demise. When such agreements do not lead to the registration of the property, one doubt remains in the minds of both the parties involved- what to do with the token money. In some cases, individual sellers demand hefty token money which is then paid by the buyer. But if this deal falls through, or gets abandoned mid-way, what happens to these payments made? Here’s a look at how to process refunds if a deal doesn’t make it to the registration process.

Token Money

Treatment of such token money accepted before the finalising of a deal comes under the income tax laws. Once terms and conditions regarding the property are decided upon, some cash is sometimes exchanged as a sign of good faith between the parties involved. The amount paid varies according to the size and location of the property and also as per the terms and conditions laid out by the seller. If the seller backs out from the deal, the buyer may file for a  compensatory suit and demand that they get refunded the money they lost in the transaction.

Tax Issues

If the buyer backs out, the seller may forfeit the token money paid beforehand and in some cases decides against doing so. The buyer does not have the right to any tax benefit for the amount paid, as it comes under the capital loss bracket under tax laws. However, if the money is forfeited, it becomes the seller’s income for that fiscal year and is hence taxable. Such money comes under the bracket of income from other sources and is not taxed as capital gains though the money comes from a capital source such as property asset. Before 2014, wherein an amendment was made to the tax laws involving the deduction of money, the amount forfeited was deducted from the acquisition cost.

Get Your Property Registered

To reduce Registration charges

  1. Agree to pay for the stamp papers.
  2. Negotiate prices with the deed writers
  3. Negotiate legal fees

Refund of Stamp Duty

For most property transactions, the buyer pays some money as stamp duty, and this may be a fixed amount or maybe a percentage of the total value of the asset being bought. There are specific registration fees, and other such service charges that also need to be paid to complete a registration or property deal and such fees are decided upon by the respective state governments under whose jurisdiction the property falls. Hence the refund laws also vary from state to state regarding stamp duty.

The Maharashtra government allows you to claim a refund for the stamp duty, within six months from the date of registration and the government may deduct 1% of the stamp duty ranging from a  minimum of Rs 200 and a maximum of Rs 1,000. Such refunds may be claimed for up to two years from the date of the deal registration if it was cancelled and the buyer can stake a claim for refund within this period of time.

The refund gets approved if the seller fails to fulfil his side of the deal and hand over the property in time. The cancellation agreement should be registered under law for the refund to be accepted and approved. The buyer can get up to a maximum of 98% of the stamp duty as a refund. One is expected to attach the original agreement, and the original cancellation deed, with both being registered along with the refund application. Buyers will not get any refund on their registration fees under any circumstances.

Steps

  • Cross-check the sale deed before signing it
  • Provide a valid reason for exiting from the deal.
  • Try to shift the purchase to another property of the same builder.
  • Network with other buyers to build pressure.
  • Ask for a cancellation agreement.
  • Don’t ever pay in cash.
  • Always ask for a receipt.

Refund of GST

Booking and buying of construction property require the payment of a specified amount as the prescribed GST charge levied on the agreed value and is a fixed percentage of the market value of the property. The rate depends on the classification of the property and whether or not it is an affordable housing property or not. If a deal does not go through and gets abandoned mid-way, the seller may refund the booking amount and if GST has been collected may or may not agree to repay this amount depending on whether the builder has already deposited the credit over to the government.

In 2009, people who invested in the New Town Heights project in Gurgaon joined hands and pressurised the builder, DLF to either complete the project or hand them their refund. When a deal falls through, a buyer’s options are limited. They can choose to take the seller to court but that might take years to sort out, or they might accept their fate. Both these solutions do not in any way benefit the buyer, and this is why having a good knowledge of such refund policies come into play.

Is PAN mandatory for obtaining GST registration?

A PAN is mandatory for GST Registration despite of being an LLP, Proprietorship or a Trust. For foreigners, it is not a necessity but for non resident taxable persons it is. Understand the procedure for GST registration and GST returns here.

How does SSI/MSME help me get a loan from a bank?

For the MSMEs, banks and other financial institutions will provide funding at relatively lower rates than the same sanctioned to the normal businesses. More about Udyog Aadhar Registration.

Is it necessary to attach any documents along with the return of income?

There are certain situations when income tax authorities can call your for inquiry related to your income tax return filing. You have to provide the necessary documents to them. More on Income Tax Return Filing

Does ISO 9001 2015 require a quality manual?

The reviewed ISO 9001 would not be completely as per formality. However, it is still worth to keep the quality manual. Learn more about ISO Certification.

What is the procedure for registration of an NGO with the Income Tax Department ?

The application filed in 10 A form needs to be completed within 1 year of establishment of the NGO and send accross to the Commissioner in charge of the region of the NGO. More info on NGO Registration in india.

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