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Cancellation of property deal : tax implications and money refund

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Cancellation of property deal : tax implications and money refund

Last updated: September 27 2019
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  • Cancellation of property deal : tax implications and money refund

    In case a property deal is cancelled, what are the taxes and financial bindings pertaining to token money, stamp duty and GST?
  • #2

    #2

    Re : Cancellation of property deal : tax implications and money refund

    Treatment of token money under the income tax laws

    The token money, in almost every property transaction, is considered as a take away amount in case the deal gets cancelled from the buyer's side. The token money varies from a mere consideration of the deal to a substantial percentage of the value of the property. If a seller backs off from his commitment to sell his property, he doesn't face any immediate financial implications. However, the buyer can file a suit for specific performance in the courts of law, though this is hardly resorted to.

    in case a buyer backs out, the seller can forfeit the token money paid and with respect to such forfeited token money, the buyer cannot claim any income tax benefit, as this is treated as a capital loss under the tax laws. However, the advance money/earnest money that is forfeited, becomes an income of the seller in the year in which the deal is called off. Such forfeited earnest money is taxed under the head ‘income from other sources’ and not under the head ‘capital gains’, even though the income is received with respect to a capital asset. Before the amendment of the law in 2014, the amount of forfeited earnest money was required to be deducted from the cost of acquisition of the asset with respect to which it was received, in the year in which the asset, which is the subject matter of the deal, was sold.
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    • #3

      #3

      Re : Cancellation of property deal : tax implications and money refund

      Refund of stamp duty paid

      The Maharashtra government entitles buyers to claim refund of the stamp duty, within six months from its payment, in certain situations. You can claim the refund of stamp duty paid on such instrument, if the same has not been executed. The government deducts 1% of the stamp duty, subject to a minimum of Rs 200 and a maximum of Rs 1,000 of the stamp duty paid.
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      • #4

        #4

        Re : Cancellation of property deal : tax implications and money refund

        For cancellation of deals for which the agreements have already been registered, the Maharashtra government allows a longer period of two years from the date of the agreement, for claiming the refund of the stamp duty, subject to certain conditions. It is allowed, only if the developer fails to hand over possession of the property booked and this fact, as the reason for cancellation of the deal, is mentioned in the cancellation deed. The rules also provide that the cancellation agreement should be registered.
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        • #5

          #5

          Re : Cancellation of property deal : tax implications and money refund

          A buyer can get a refund of 98% of the stamp duty, if an application is made for a refund of the stamp duty. With the refund application, you are required to attach the original agreement, as well as the original cancellation deed, with both the documents being registered. However, you will not get a refund of the registration charges.
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          • #6

            #6

            Re : Cancellation of property deal : tax implications and money refund

            Thanks Malvish what about refund of GST?

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            • #7

              #7

              Re : Cancellation of property deal : tax implications and money refund

              Upon cancellation of the property deal, the developer may or may not agree to refund GST even if the developer may have collected GST from you, as he may have already deposited the amount to the credit of the government. The government does not refund GST to the builder once the service has been provided.
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