In any real estate transaction, money is expected to flow in one direction: from the buyer to the seller. But what happens when a property deal falls through? Do both parties lose their money, or is there a way for them to recover some of their investment?

There can be many reasons why a property deal might be cancelled. It could be because of non-receipt of necessary documents, such as KYC details, income or address proof, or even due to personal reasons like marriage or relocation due to a new job etc.

As a result, buyers who have paid an advance of a certain percentage of the property value are likely to have questions like Can I get the token money back from the seller? Will I get the full refund of the advance paid, or will there be deductions?

In this article, we will help answer your questions about how money is refunded in India.

Having to deal with many state laws and regulations, as well as different vendors, can make things difficult. When a property deal is cancelled, many details need to be taken care of immediately. Among these details is the money that has already been paid out for the property, like token money, stamp duty, and GST tax.

Token Amount

Once the buyer and seller have reached a verbal agreement, the first transaction a buyer typically has to make is pay the token money as a form of intention to go ahead with the sale.

The amount of token money can vary from developer to developer and can range from a small amount to a substantial part of the purchase price.

In an event, where the buyer backs out, the seller is entitled to forfeit the token money. For such forfeited token money, the buyer cannot claim any income tax benefit, as this is treated as a capital loss under the tax laws. Usually, such conditions are already conveyed to the property buyer in a written agreement. However, it is always wise for the buyer to know whether the money will be refunded or not, in case the deal doesn't go through before the token money is handed to the seller.

Stamp Duty

Stamp duty is a type of property tax that needs to be paid when the property changes hands. The tax was levied when the Indian Stamp Act of 1899 came into place. When a person buys a property in India, he/she has to pay stamp duty based on the value and nature of the property. It is important to remember that stamp duty varies from state to state and on the kind of property, i.e. residential or commercial.

The tax includes transactions such as conveyance deeds, sale deeds and power of attorney papers. The owner only gets complete ownership of the property after the stamp duty is paid.

A buyer is required to pay for registration charges along with Stamp Duty and the rates for the same vary from state to state. The refund process therefore also depends state-wise.

E.g.: If a real estate deal is cancelled after the agreements have been registered, the Maharashtra government allows two years to claim the stamp duty refund. A refund can be requested only if the developer fails to deliver possession of the property that has been booked.

Stamp duty paid by the buyer can be reimbursed up to 98% of the amount paid. For a refund to be granted, the original cancellation deed and original agreement must be submitted with the refund application. However, no reimbursement will be made to Buyers for registration expenses.

GST Return

Developers charge GST on agreements for under-construction properties based on the current law. The GST rate is determined by whether the property the buyer intends to purchase comes under the affordable housing segment. If a buyer wants to cancel the booking, the refund for the GST will depend on the builder of the property and the demand dynamic during that time. However, the developer, the one who takes raw land, obtains the necessary permits, creates building lots, and puts in the sewers, the water and electric lines, the streets and curbs, may or may not refund the amount as most likely he already has rendered his services.

Buying a house requires a lot of thorough deliberation along with sorting out finances and paperwork. Amidst sorting through all of these steps, many homebuyers fail to get complete information on what would happen in case the deal falls through. That is why it is important to sit and do thorough research or take guidance from real estate experts so that your hard-earned money is always invested in the right way.