How Can Homebuyers Get a GST Refund When They Don't Receive the Promised Services?

The GST Council periodically reviews the GST rules and rates.

GST Refund

We sometimes pay GST for service along with the buying price. The GST Council held a meeting on December 17, 2022. It announced a framework where individuals could claim a GST refund on cancellation of the contracts from the government. The GST Council periodically reviews the rules and rates, and this was one of the most significant revisions. 

Also ReadGet GST paid on the under-construction property back if the deal falls through. 

Working of the Mechanism

For example, if a homebuyer and a developer enter into a contract to purchase an under-construction home, the buyer regularly pays the developer instalments and GST for homebuyers. The developer proceeds to deposit the GST within the timelines. However, the developer can only provide some services mentioned in the contract after completing the construction. The homebuyer can then ask for a refund for the service's value that wasn't provided. 

The developer must refund the amount for all services he failed to provide. However, the developer cannot offer a GST refund. 

The Previous Law Regarding GST Refund

In cases like the above, the builder need not repay the customer the GST as they would have deposited it to the government within the time limit. However, the GST law has a mechanism wherein the service provider or builder can get the GST refund benefit on services he did not provide. He can use the GST amount (A) against the other GST liabilities (B). He must deposit B with the government and is free to deposit B - A. It will be permitted when the builder repays the A component to the customer who originally paid the A amount along with the service cost but did not receive the service. 

For instance, the service provider must deposit Rs. Three lakhs a month as GST for the provided services. However, a few customers can be refunded the paid price for services they did not get. The GST collected from them initially and deposited with the authorities will be adjusted against the future GST liabilities or the provider. This mechanism is a little restrictive because the law allows the service provider only to claim GST adjustment collected on the invoices issued in a financial year and declared up to the next financial year's November 30.

The service provider or builder's GST adjustment for invoices issued in the current financial year can be claimed by November 30. When the service provider receives the GST refund, they must pay it back to the original GST-paying customer. Please remember that the service provider is not bound to use the adjustment after the due date. 

Also ReadHow to claim an income tax refund in 2023?

The customer might have lost out on the partially paid GST under long-term service contracts on incomplete and delivered services. There was no adjustment mechanism under the GST law for GST refunds earlier. The GST Council addressed this issue and closed this loophole through a meeting on December 17, 2022. 


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