Consider this: you have been negotiating on a property deal for a year now. Unfortunately, the deal has to be cancelled by the seller due to unforeseen circumstances. What happens next? Any seller worth their salt knows that property deals are unpredictable. The deal can be cancelled by either party. In India, particularly, property deals fall through due to multiple reasons. It is why you must always do your research on cancelled or failed property deals.
In such circumstances, the buyer is left with multiple loose ends. What happens to their money? Do they get a refund for the cancelled property deal? Well, here’s a detailed guide on how to get your money back after the cancellation of a property deal.
Refunding the booking amount
According to the Real Estate (Regulation and Development) Act 2016 (RERA), the builder or seller has the right to forfeit the booking amount in case the homebuyer backs out. Furthermore, the buyer cannot claim any tax benefits from this as it is taxed under capital losses.
The case of the token money
All property deals include some amount of token money. This token money is paid by the buyer after the terms and conditions of the property deal have been fulfilled. The token money can range from a nominal fee to a hefty sum. It acts as a caution for both the buyer and seller involved in the property deal.
If the seller backs out of the property deal or fails to fulfil the terms and conditions agreed upon in the contract, the buyer has the right to sue. The buyer can then file a suit against the seller in court. This is an extreme scenario and most buyers don’t resort to it unless necessary.
If the buyer calls off the deal, then the seller has the right to forfeit the token money as a compensation amount. The seller or the builder can refund the token amount if the buyer has genuine reasons for calling off the deal. Or, the buyer may deduct some percentage of the token amount, say 10%, and return the rest to the buyer.
In case the buyer is found guilty of duping the seller, then the latter may charge an additional 10-15% penalty fee. For the seller, the token money becomes their income for the year in which the property deal was cancelled. This is taxable but it is taxed under ‘income from other sources and not ‘capital gains’ despite it being received from a capital asset.
To conclude, it all boils down to the reason behind the cancelled deal. If the reason is genuine, the seller may decide to refund the token amount.
Is stamp duty refundable for cancelled property deals?
In India, the stamp duty on property deals varies from state to state. Thus, the stamp duty refund depends on both the state and the seller. The buyer may request a refund from the registration department of the state if the property was already registered. This means that the property must go through the appropriate stamp duty and registration procedures before the buyer can ask for a refund.
A note: Most states demand the reason behind this cancellation charge. So before you can ask for a refund, you have to have a solid reason for the property deal cancellation. You need to submit a copy of the cancellation deed and the original property sale agreement. Moreover, the buyer can only request for stamp duty refund and not the property registration charge.
GST refund for property cancellation deals
When you book a property that is under construction, you are liable to pay a certain amount as the goods and services tax or GST in India. The GST is charged on the agreement value of the property. The builder is not obligated to return your GST charge as they have already provided you with the service. In any case, if the GST is returned after a property deal cancellation, it depends on the builder alone.
So what does this mean for a cancelled property deal? The seller or the builder has the right to forfeit any GST charges levied on the property. Bear in mind that the GST charge is usually already paid to the central government within a month of the payment done. Thus, refunding GST charges becomes difficult for the seller.
Transferring property rights to a third party
In case you transfer the property rights of the under-construction property to a third party, the sale price is inclusive of GST charges. In this case, cannot recover or charge GST separately. When you calculate your capital gains, the GST is included in the cost of acquisition.
Are these capital gains taxable? Yes, they are taxable as long-term if you have a holding period of at least three years. Otherwise, the profits are taxed as short-term capital gains.
The bottom line: Who cancelled the property deal?
The conclusion lies in the question – who cancelled the property deal? If you’re a buyer cancelling the deal, you stand to lose the token amount, the booking amount as well as the GST. You can get an assured return of the stamp duty charges but the registration charge is non-refundable. That being said, the refunds also vary depending on the builder-buyer agreement.
Frequently Asked Questions (FAQ)
1. Is token money refundable?
The token money is refunded only if there was a previous agreement and if there is a genuine reason for the property deal cancellation (on the part of the buyer).
2. Is GST refundable after property deal cancellation?
The GST charge is usually non-refundable in case of property cancellation. It depends on the sole discretion of the builder.
3. Can I get a stamp duty refund after a cancelled property deal?
You can apply for a stamp duty refund at the registration department in your state. Stamp duty is usually refundable up to 98% but it varies from state to state. The registration charge for the property however is non-refundable.
Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.