How your money can be refunded if the property deal is called off or cancelled?

For any reason if property deal is cancelled. Know how money can be refunded.

Every time it won’t be necessary that a property deal would culminate in the execution and registration of an agreement. At times, the deal may be abandoned halfway, even after the token is paid or after some payments have been made. According to the RERA (Real Estate Regulation and Development) Act, 2016 for any reason, the buyer or seller can cancel the deal. Once the deal is cancelled, it binds the builder to return the money collected from the buyers within 45 days of cancellation after deducting the token amount. The token amount shall be forfeited by the builder. 

Is token money taxed and how?

In case of deals for the purchase of any real estate, the buyer generally pays a booking amount. This booking amount may vary, from being merely a token to a substantial percentage of the value of the property. If the seller backs off from his commitment to selling his property, there is no immediate financial implication. 

If the homebuyer backs out from the deal, the seller has the right to forfeit the token money paid. The buyer cannot claim any income tax benefit, as this is treated as a capital loss under the tax laws. The earnest money is taxed under the head ‘income from the other sources’, though the income is received with respect to a capital asset.  

Moreover, it has stipulated that if a developer fails to provide the possession of the apartment within the agreed time, the buyer can terminate the agreement and is entitled to reimburse the amount paid with interest in 45 days of such termination on which interest is due. 

Refund of stamp duty paid

Usually, for all property transactions, the buyer has to pay a certain amount as stamp duty. In Maharashtra, you are entitled to claim a refund of stamp duty, within 6 months from its payment. The government deducts 1% of the stamp duty, subject to a minimum of Rs. 200 and a maximum of Rs. 1000 of the stamp duty paid. 

In case of property deal cancellation for which the agreements have already registered, the Maharashtra government enables a longer period of two years from the date of the agreement, for claiming the refund of the stamp duty, depending upon the circumstances. The refund is made, only if the builder of the stamp duty fails to hand over possession of the property booked. If an application is made, a homebuyer can obtain a refund of 98% of the stamp duty. 

Refund of GST (Goods and Services Taxes)

Suppose you get into an agreement to transfer your rights in the under-construction property to a third party, with the developer being the confirming party, the GST amount is included in the sale price. While computing the capital gains, the GST that is already paid by you will form part of the cost of acquisition. If your holding period has been three years, the capital gains will be taxable as either long-term or short-term capital gains. 

So far you must have understood that there are financial and income tax consequences that are followed and examined when any property deal is cancelled either by the buyer or seller. Now we consider that you are aware of what to be done to get a money refund on the cancellation of the deal. 

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.