BUSINESS
EASY PROCESS: FAQs released by finance ministry states the homebuyer is allowed to avail credit adjustment for such refunds
In an instance of a homebuyer canceling an apartment booking with a realtor, the homebuyer is entitled to claim Goods & Services Tax (GST) paid back from the developer.
Secondly, the buyer has been allowed to avail credit adjustment for such refunds.
These points were clarified by the Ministry of Finance in a document to address several queries pertaining to GST tax rates that have been asked by homebuyers and builders.
Since the GST has been introduced, there have been changes in tax rates, leading to confusion in the real estate industry as well as among the end-customers.
In March, GST Council had reduced tax rate on different categories of housing to 1% (affordable housing) and 5% (those out of the affordable ambit) with certain riders. The realtors have also been given an option to select the earlier tax rate for the projects that were already launched.
One of the details in the Frequently Asked Questions (FAQs) released by the Ministry of Finance on Tuesday pertains to cancellation of an apartment, "How to compute adjustment of tax in a Credit Note to be issued u/s 34 by Real Estate Developer in case unit was booked prior to April 1, 2019, on which GST was paid on part consideration received at the time of booking, but cancelled after April 1, 2019?"
As per the explanation provided, the realtor has to issue a credit note to the homebuyer if there's a change in price or cancellation of a residence.
"Developer shall 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 provided that the amount received in excess if any, consequent to issuance of credit note, is refunded to the buyer by the developer before September following the end of the financial year. Developer shall be able to make adjustment of tax paid in respect of the amount of such credit note," read the FAQ document.
In another query, the clarification is specific that if the builder decides to continue with the old tax rates, wherein the realtor is entitled to claim input tax credit, such a company is expected to pass on input tax credit benefit to the homebuyer too.
Prashanth Agarwal, partner, PwC, said, "The FAQs have clarified certain ambiguities which developers had regarding the new scheme. It is imperative to undertake a detailed analysis before opting for the option/new scheme by May 10. Further, next steps would need to be finalised, including handling customer queries/ sentiments, undertaking timely credit reversals and planning new projects in a tax optimal manner for minimising tax loss."
"Developers would need to evaluate whether to opt for a new scheme or not for the existing projects. Accordingly, there needs to be appropriate communication to the customers," Agarwal said.
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