Shreedhar Rai booked an apartment in May 2020 by paying the booking amount. While he was busy planning the finances for his new home, his long-pending permanent resident status in Canada got approved. While his joy knew no bounds, he was confused about the apartment booking. Also, he had already applied for a home loan. Since his move was going to be for an indefinite duration, he didn’t want to have any assets or liabilities back here in India. So, he decided to cancel the booking but was unclear about the process of doing so.
It is important to note that not all property deals lead to the execution and registration of an agreement. Now, there could be various reasons for this. Some common ones are cash crunch, finding a better deal elsewhere, and change in city or country, among others. What is the way out in such cases? Let’s find out.
Refund of the booking amount
To book a unit in a project, the buyer generally pays the token money, which varies from builder to builder, even project to project. If the seller backs off from the deal, the buyer is entitled to get his entire token money back.
However, when the buyer wants to cancel the deal (like in Shreedhar’s case), the cancellation and refund clause of your agreement will come into the picture. The builder-buyer agreement usually has a refund clause that gives the right to the developer to forfeit a certain amount as a penalty or liquidated damages. While the penalty varies, it usually ranges anywhere between 1-10% of the total sale consideration, depending upon the stage at which the buyer walks out.
Having said that, when the buyer wants to cancel the deal, the seller has the right to forfeit the booking amount paid. Also, the buyer cannot claim any income tax benefit, as this is treated as a capital loss under the tax laws.
According to the Real Estate (Regulation and Development) Act 2016 (RERA), “The allottee shall have the right to cancel/withdraw his allotment in the project as provided in the Act: Provided that where the allottee proposes to cancel/withdraw from the project without any fault of the promoter, the promoter herein is entitled to forfeit the booking amount paid for the allotment.”
Refund of stamp duty
What happens to the stamp duty? Since stamp duty is a state subject and is fixed by the state government, the refund rate also varies from state to state. Usually, if the refund of stamp duty is claimed within six months, it is refunded after deducting a certain percentage of the total amount paid.
For instance, in Maharashtra, 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.
Here’s another scenario: If the builder fails to deliver the possession of a registered property on the promised date, a homebuyer can avail a refund for stamp duty from the registration department.
There is no refund for the registration charges.
Refund of GST
If a buyer has booked an under-construction property, there will also be Goods and Services Tax or GST. If a buyer cancels the booking, the developer may or may not agree to refund this amount, as he may have already deposited the amount to the credit of the government.
To save money, it is suggested to find a buyer to sell your property and enter into an agreement to transfer your rights to a third party (with the developer as the confirming party). In such a scenario, your sale price would be inclusive of the GST and other charges.
What about the loan?
Applied for a home loan already? If the amount has not been disbursed, you can cancel your loan by informing your bank in writing. If the loan has been sanctioned, the bank will not return the processing fees. However, once the loan is disbursed, you cannot cancel it.
