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GST ON FORFEITED AMOUNT WHICH IS WAIVED
As per the agreement with seller, if buyer surrender under construction flat during midway then seller can forfeit booking amount however as a special case seller had not forfeited any amount however they had charged GST on the forfeited amount which they would have forfeited. whether this is correct. please mention notification/ circular no etc if you know.
Replies (1)
As per the Goods and Services Tax (GST) regulations, let’s delve into the specifics of your situation:
GST on Forfeited Amount:
When a buyer surrenders an under-construction flat midway, the seller may forfeit the booking amount as per the agreement.
However, in your case, the seller did not forfeit any amount but still charged GST on the forfeited amount that they would have otherwise forfeited.
This scenario raises a valid question about the correctness of charging GST in such a situation.
Applicability of GST on Forfeited Amount:
The amount forfeited or received by the seller is considered a supply of service under Clause 5(e) of Schedule II of the CGST Act, 2017.
Therefore, it is liable for GST.
However, there are certain exemptions and concessions in the construction sector under GST law:
Affordable Housing: Construction work for affordable housing projects attracts a reduced GST rate of 1%.
Affordable housing refers to residential properties with a carpet area of up to 60 square meters in metropolitan cities and up to 90 square meters in non-metropolitan cities, with a value equal to or less than Rs. 45 lakhs.
Exemptions:
GST is not applicable to the construction of properties in the case of property resale, buying and selling apartments for residential use, and the buying or selling of land.
Construction services provided through pure labor contracts under the Pradhan Mantri Awas Yojana (PMAY) are also exempt from GST.
Construction services through pure labor contracts for a single residential unit or a part of a residential complex are exempt from GST.
e-Way Bills: These are required for the transportation of building materials (such as cement, steel, etc.) only when the consignment value exceeds Rs. 50,000.
Legal Reference:
Section 74 of the Indian Contract Act, 1872 deals with compensation for breach of contract where a sum is named or a penalty has been stipulated.
It allows the party complaining of the breach to receive reasonable compensation, even if actual damage or loss is not proved.
GST on Forfeited Amount:
When a buyer surrenders an under-construction flat midway, the seller may forfeit the booking amount as per the agreement.
However, in your case, the seller did not forfeit any amount but still charged GST on the forfeited amount that they would have otherwise forfeited.
This scenario raises a valid question about the correctness of charging GST in such a situation.
Applicability of GST on Forfeited Amount:
The amount forfeited or received by the seller is considered a supply of service under Clause 5(e) of Schedule II of the CGST Act, 2017.
Therefore, it is liable for GST.
However, there are certain exemptions and concessions in the construction sector under GST law:
Affordable Housing: Construction work for affordable housing projects attracts a reduced GST rate of 1%.
Affordable housing refers to residential properties with a carpet area of up to 60 square meters in metropolitan cities and up to 90 square meters in non-metropolitan cities, with a value equal to or less than Rs. 45 lakhs.
Exemptions:
GST is not applicable to the construction of properties in the case of property resale, buying and selling apartments for residential use, and the buying or selling of land.
Construction services provided through pure labor contracts under the Pradhan Mantri Awas Yojana (PMAY) are also exempt from GST.
Construction services through pure labor contracts for a single residential unit or a part of a residential complex are exempt from GST.
e-Way Bills: These are required for the transportation of building materials (such as cement, steel, etc.) only when the consignment value exceeds Rs. 50,000.
Legal Reference:
Section 74 of the Indian Contract Act, 1872 deals with compensation for breach of contract where a sum is named or a penalty has been stipulated.
It allows the party complaining of the breach to receive reasonable compensation, even if actual damage or loss is not proved.
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