GST Excess Refund on Bangalore Properties | Legal Brigade

By the Property Law Team | Legal Brigade | Bar Council of Karnataka

When a Bangalore developer collected GST on an under-construction flat at the old 12% rate (applicable before April 2019) for a project where the GST rate was subsequently reduced to 5% for non-affordable housing or 1% for affordable housing -- or where the developer continued collecting 12% after the rate reduction date and did not pass on the rate reduction benefit to the allottees who made post-reduction payments -- the developer has engaged in profiteering: retaining the GST rate differential as additional revenue rather than passing the reduction benefit to the buyers.

What GST Rates Apply to Under-Construction Residential Properties?

The GST Council reduced GST on under-construction residential properties effective April 1, 2019: the rate was reduced from 12% (with input tax credit) to 5% for non-affordable housing and to 1% for affordable housing (flats with a carpet area up to 60 square metres in metropolitan cities or 90 square metres elsewhere, and with a value up to Rs 45 lakh). After April 1, 2019, a developer who continued collecting 12% on instalments for a project that qualified for 5% or 1% was overcharging the buyer.

The National Anti-Profiteering Authority (NAA) -- now the Competition Commission of India (CCI) which took over the anti-profiteering function -- is the statutory body that investigates and adjudicates profiteering complaints under Section 171 of the CGST Act. Section 171 requires that any benefit from a GST rate reduction must be passed on to the recipient (the buyer). A developer who retained the benefit is liable to refund the excess collected plus 18% interest per annum from the date of collection.

How Should the Allottee Pursue the GST Excess Refund?

1. Gather all GST invoices received from the developer -- confirming the GST rate charged on each instalment payment. Note the date of each payment relative to April 1, 2019.

2. Identify all post-April 2019 payments on which GST was collected at 12% -- these are the payments where the excess was collected.

3. Calculate the excess GST collected: for each post-April 2019 instalment, the excess is the difference between 12% and the applicable rate (5% for non-affordable or 1% for affordable housing).

4. Send a formal demand notice to the developer for the excess GST refund with 18% interest from the date of each excess collection.

5. If the developer does not refund, file an anti-profiteering complaint with the State GST Screening Committee or the CCI's anti-profiteering division -- attaching all invoices and the calculation of the excess.

Q1. What is the anti-profiteering provision under GST?

Section 171 of the CGST Act 2017 requires any registered person who benefits from a reduction in the GST rate to pass on the benefit to the recipient (the buyer or customer). Profiteering is the act of retaining the benefit of a GST rate reduction without passing it to the buyer. The CCI (which took over the NAA's anti-profiteering functions in 2023) can direct the profiteering amount to be refunded to the buyers with 18% interest and can impose a penalty equal to the profiteering amount.

Q2. What is the difference between non-affordable and affordable housing for GST purposes?

Affordable housing for GST purposes is a residential flat with a carpet area of up to 60 square metres in metropolitan cities (including Bangalore) or 90 square metres elsewhere and a value of up to Rs 45 lakh. Non-affordable housing is everything above these limits. Affordable housing attracts 1% GST while non-affordable housing attracts 5% GST on under-construction properties (effective April 1, 2019). Most Bangalore flat buyers in standard residential projects fall in the non-affordable category (5% GST).

Q3. Is the GST on a completed flat (OC received) different from an under-construction flat?

Yes -- GST applies only to under-construction properties (where construction was not completed before the OC was received). Once the OC is received and the flat is "ready to move in", the transaction is treated as a sale of immovable property (which is not a supply of goods or services under GST). A flat purchased after the OC was received does not attract GST -- only stamp duty and registration charges apply.

Q4. Did the April 2019 GST rate reduction apply to projects already under construction?

Yes -- the April 2019 rate reduction applied to all under-construction projects from April 1, 2019 onwards -- regardless of when the project started or when the allotment was made. A project started in 2016 with allotments made at 12% GST was required to switch to 5% for all instalments collected on or after April 1, 2019. The developer had a transitional option to continue at 12% with input tax credit or switch to 5% without ITC -- but the chosen rate had to be applied consistently and the benefit passed on.

Q5. How long do buyers have to file an anti-profiteering complaint?

The CGST Rules specify the timeline for filing anti-profiteering complaints. A complaint should be filed as soon as the profiteering is discovered -- delays in filing weaken the complaint (though they do not necessarily bar it). A buyer who paid excess GST 3-4 years ago should still file -- the 18% interest makes the claim grow significantly over time.

Q6. Can multiple allottees of the same project file a joint anti-profiteering complaint?

Yes -- a joint complaint by multiple allottees of the same project is more efficient and carries greater weight with the CCI. The CCI can pass a single order covering all allottees' claims in the same project. A residents' association or a representative group of allottees can file collectively.

Q7. What was the input tax credit that the developer received under the old 12% rate?

Under the pre-April 2019 regime, developers collected GST at 12% from buyers and could claim input tax credit (ITC) on the GST paid on construction materials, cement, steel and services. The April 2019 transition to 5% eliminated the ITC benefit -- developers no longer get ITC on inputs but collect only 5% from buyers. A developer who voluntarily transitioned to 5% from April 2019 gave up ITC but reduced the buyer's GST burden.

Q8. Can the developer deduct their own GST input tax credit before calculating the anti-profiteering refund?

The anti-profiteering calculation under Section 171 is based on the net benefit retained by the developer -- the rate differential minus any ITC benefit that was also passed on. A developer who retained the rate differential but also lost ITC by transitioning to 5% may argue that the net benefit is lower than the gross rate differential. The CCI assesses the net benefit calculation on the facts of each case.

Q9. What if the developer is no longer in business -- can the anti-profiteering refund still be recovered?

If the developer's company is in NCLT insolvency, the anti-profiteering claim is an operational creditor claim against the insolvent estate. The CCI order becomes an operational creditor claim that the allottees file with the resolution professional. Recovery in an insolvency scenario depends on the estate's assets -- the anti-profiteering claim may receive partial recovery.

Q10. How does Legal Brigade assist allottees with GST excess collection claims?

Legal Brigade reviews all the developer's GST invoices, identifies the pre and post-April 2019 payment split, calculates the excess GST collected at the wrong rate, sends the formal refund demand to the developer and files the anti-profiteering complaint with the CCI if the developer refuses to refund. Legal Brigade manages the CCI proceedings and advises on the NCLT proof of claim if the developer is in insolvency.

Paid GST at 12% on your Bangalore flat's instalments even after April 2019 when the rate dropped to 5% -- and the developer never refunded the 7% difference? Legal Brigade calculates the excess, files the anti-profiteering complaint and recovers the refund with 18% interest.

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