GST recovery – Get the GST paid on the under-construction property back if the deal is canceled

GST recovery on deal cancellation of under-construction property

GST Recovery

GST is a form of indirect tax levied on goods and services, including property purchases. The GST rules are continuously reviewed and amended by the GST Council so that the tax regime stays relevant in changing times. In one such review, the GST Council recommended the rules for GST refund in the case of under-construction property. Let’s understand what changes have been introduced.

GST refund rules for under-construction properties

The Council suggested a refund of the GST paid if the deal for buying an under-construction property is canceled and the developer does not issue a credit note within the specified time period.


Let’s break down the rule in simple terms.

When you enter into a contract with a developer to buy an under-construction house property, you pay the price for the same. In most cases, the payment includes GST on the property too. Now, if you cancel the deal to buy the property before its registration and the developer does not refund the GST within the specified timeline, the Government will refund the GST you have paid.

So, to claim the refund, the following conditions should be met –

  • The deal for buying the property should be canceled or called off.
  • The cancellation should be made before the property is registered.
  • The developer did not refund the GST within the specified time.

Existing GST rules on the purchase of house property

A completed house property is not considered a good or service under the ambit of GST. As such, no GST is levied on the same.

However, GST is applicable on under-construction property. It is collected over and above the purchase price. The GST rate depends on the type of house that you buy. Affordable housing properties attract a GST of 1% of the property value, while other properties attract a 5% GST. For classification purposes, an affordable housing property is one whose carpet area is up to 60 square meters in metropolitan cities and 90 square meters in others.

You are required to pay the GST in lump sum or installments as you pay for the house property during the construction phase. The developer then pays the GST collected to the government.

If you cancel the purchase deal, the developer usually offers a credit note for the GST that you have paid. However, there’s a time-barring period within which the credit note should be issued. If the period is over, the developer cannot refund the GST, and you lose out. However, the new rules would rectify this issue as the government will undertake the refund liability and repay you the GST paid on the canceled deal.

Related - Read whether GST can make your dream home a reality

Ramifications of the changed rules

The changed rules are a welcome relief for homebuyers who canceled their deal to buy an under-construction property but lost out on the paid GST. With the changed rules, home buyers can claim a GST refund from the Government if the developer fails to do so.

You must apply for the GST refund in a stipulated format and follow the refund process. The process, however, will be declared by the government soon.

So, if you are in the market for an under-construction property, know the rules of GST refund and claim the refund if the deal is canceled.

Related - Find out the changed GST rates from July 2022


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