Flats & villas without GST & cancellation of Flat bookings- Latest Update

Flat & Villas without GST and cancellation of flat bookings- Latest developments in January 2023

As per the existing Rules under GST construction and sale of flats/ residential villas for which effective GST @ 1% & 5% is applicable for affordable residential units and others respectively.  The builder is not entitled to avail input tax credit on the purchase of goods or services. The land value can be adopted as a deduction from the total consideration as 1/3^rd of such contract amount.  However these rates are applicable only in the situation where there is an agreement for construction and sale, such transaction is falling under a works contractor it shall be treated as a supply of service with SAC Code 995411.  However if the builder is selling such flat after obtaining the occupancy certificate from the concerned revenue authorities like Corporation, Municipality, Panchayath etc./ ready to occupy and after that any sale  agreement or sale deed executed then in such circumstance it will be treated as supply of immovable property which is outside the ambit of  GST.  In short if the builder selling the flats to the buyer after obtaining such occupancy certificate/ completion certificate in such circumstances there is no GST.

However if there is an agreement executed for e.g. Rs.1 Crore and the prospective buyer given an advance of Rs.10 lakhs at the time of execution of such agreement andRs.30 lakhs remitted in installment,  subsequently builder completed the project and obtain the occupancy certificate after six month. Here the question is whether GST is applicable for the advance remittance of Rs.40 lakhs only or on the entire contract amount.  The answer is since at the time of entering the original agreement with builder and prospective buyer occupancy certificate was not received and hence there was no exemption from GST and the buyer is liable to pay GST @ 5% on the entire contract amount ofRs.1 crore accordingly.

Even if there is no GST liability for the sale of flat or villas after obtaining the occupancy certificate, the TDS under section 194 IA is applicable and @ 1% to be deducted by the purchaser from the consideration, provided the amount exceeding Rs.50 lakh for such property.    Subsequently Form 16B to be issued by the purchaser.

During December 2022 CBIC issued  Circular No. 188/20/2022 – GST dated 27^th December 2022 after the 48^th GST Council Meeting in which if booking of a flat cancelled in which builder has to remit GST even for the advance receipt from the prospective buyer. However if such booking of flat got cancelled later, GST part of the advance payment can be returned via credit note to the customer u/s 34 of CGST Act (i.e. before the filing of Annual Return or 30^th November of subsequent financial year whichever is earlier)  If this period also expired in such circumstance Circular No.188/20/2022 dtd. 27-12-2022 provides the direction to give refund to such unregistered persons directly under section 54(8) (e) of CGST Act.  Here such unregistered person has to obtain a temporary registration and also file the RFD-01 under the category of refund for unregistered dealer.  The documents required as per Notification No.26/2022 to be uploaded.  If such refund pertaining to different states, separate temporary registration to be taken in each state for the above refund.  Similarly relevant dates for refund amount as per Section 54(1) it is stated that 2 years from the relevant date.  Here relevant date means date of issuance of letter of cancellation of the contract.  If the refund amount is less than Rs.1000/- such amount is not eligible under this circular.  The proper officer shall verify RFD-01 and shall issue RFD-06 order accordingly.