Key things to consider when cancelling an apartment booking

Purchasing a house involves a significant amount of planning on the part of the buyer. Yet, there may be reasons that compel a buyer to cancel an apartment booking. These could include financial or personal challenges as well as other issues such as project delays or disputes with the builder. In many cases, people opt for pre-approved loans. Thus, cancelling a property when one has an existing home loan is not an easy process. It has several financial and legal implications. In this article, we will discuss some key points that buyers should consider.  

Common reasons for apartment booking cancellations

Typically, buyers book properties as a well-thought-out decision involving prior planning. However, there could be circumstances when a buyer decides to cancel the booking. 

• Financial challenges: Loss of job, unexpected expenses or changes in loan eligibility are some reasons that can impact a person’s ability to finance a house purchase. Under such situations, the buyer may be compelled to cancel a flat booking to prevent further financial burden. 
• Personal issues: An individual’s personal circumstances, such as relocation to another city or family commitments, can influence property-related decisions, including the cancellation of a flat booking. 
• Project delays: Repeated changes in the project delivery schedule can compel a homebuyer to consider flat booking cancellation to prevent possible financial problems. 
• Legal or regulatory challenges: Legal disputes or issues related to approvals, land disputes, non-compliance with RERA regulations, etc., are some reasons a buyer may be forced to cancel a property booking. 
• Alternative investment opportunities: A homebuyer may come across a better option after booking an apartment in a project. If the alternative property option offers better returns, more amenities and convenient payment plans, then the buyer may want to cancel the existing property booking. 

How to cancel an apartment booking?

A homebuyer has the option to cancel an apartment booking if they anticipate potential legal issues with the property, are facing any financial challenges, or have other personal reasons. There are no formal rules set by the government regarding property booking cancellations. The refund amount and timeline largely depend on the property sale agreement. 

Here are the steps a buyer will be required to follow: 

Read the booking agreement

The cancellation will be subject to the terms and conditions mentioned in the builder-buyer agreement, including the sale agreement or contracts relating to property allotments. The buyer should carefully review the clauses regarding refund on booking cancellation, cancellation charges levied by the developer, deductions or penalties, etc.

Inform the developer

To cancel a property booking, the developer should notify the developer in writing through an official letter or email. They must state their intention to cancel the booking and request a formal acknowledgement of their cancellation request. 

Submit supporting documents

During the cancellation process, the buyer must submit supporting documents, including a copy of the booking agreement, proof of identity, and payment receipts. If they are eligible for a refund, they must furnish their bank details.

Cancellation charges and refund policies

In the next step, the buyer must consider the charges applicable for cancelling a flat booking. Typically, a specified percentage of the booking amount is deducted as flat booking cancellation charges. This may range from 25,000 to Rs 2 lakh or up to 10% of the total consideration, based on the construction stage and agreement terms. Moreover, the amount to be refunded will depend on the developer’s cancellation policy and the applicable deductions.   

Refunds for flat cancellations may not include charges levied by the government, such as GST and stamp duty. In some states, the authorities allow a refund of the stamp duty amount if the agreement is not registered. However, GST refunds are non-refundable.  

Here are the typical refund clauses based on the payment types:

• Payment of token money or down payment: Developers deduct around 10% from the booking amount as cancellation charges. This percentage is specified in the builder-buyer agreement or sale agreement.
• GST charges (for under-construction properties): Unregistered buyers have the option to claim a GST refund within two years from the date of issuance of the cancellation letter.
• Stamp duty amount: The stamp duty amount may qualify for a refund. However, the refund clauses will differ from state to state. A fee of 10% will be deducted from the refund amount.
• Registration charges: The registration charges, which vary from 1% to 2% of the property value, are non-refundable.

RERA rules on property booking cancellation 

Every state has its own Real Estate Regulatory Authority (RERA), which oversees real estate transactions and works to protect the interests of buyers by establishing rules and regulations, including rules for flat booking cancellation. 

• In case of flat booking cancellation, developers registered under RERA are liable to return the amount collected at the time of purchase within 45 days.
• If the builder fails to give possession of the apartment within the stipulated time, the buyer can terminate the agreement. Moreover, the buyer must pay the refund amount for the token within 45 days. An additional interest of 2% is applicable.
• At the same time, RERA allows developers to make deductions in the booking amount if the buyer cancels the booking without any fault on the part of the developer. These rules and regulations apply on a case-by-case basis.

Tax implications of apartment booking cancellation

According to the Tax Appellate Tribunal (ITAT), if the amount received upon cancellation of flat registration is higher than the paid earnest deposit, it will be considered a capital gain. In such cases, the difference between the received amount and the actual paid earnest deposit will be regarded as taxable income, paid in the form of Capital Gains Tax.

A buyer should note that any tax paid may not be reimbursed during cancellation. 

Things to remember when opting for flat booking cancellation 

• The flat booking cancellation clauses are usually mentioned in the builder-buyer agreement. If cancellation clauses are not specified in the contract, a buyer has the right to request a 100% refund from the developer. 
• Stamp duty refunds must be claimed within six months of the tax paid, according to the Indian Stamp Act, 1899. 
• When paying the booking amount, it is better to opt for cheques or other recordable payment modes instead of cash. Acknowledgement document, received in lieu of a payment, should be saved for future reference. 
• Any communication between the buyer and the builder should be in writing. Verbal communications are not considered valid in case the matter reaches the court. 

What to do if the developer refuses to refund the booking amount?

If there is a cancellation clause in the agreement and the developer refuses to refund the booking amount, the buyer has the right to file a case against the developer in a consumer forum and seek a refund with interest. 

Furthermore, RERA safeguards buyers’ interests by establishing clear rules for flat booking cancellations. These regulations protect the buyer against refund delays or arbitrary deductions. If the developer refuses to refund the amount or levies unreasonable cancellation charges, the buyer can approach the state RERA and file a complaint. 

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During the homebuying journey, homebuyers should plan for contingencies that may necessitate the cancellation of their flat bookings. If they are eligible for a refund, they must maintain regular communication with the developer and track the refund status as per the timeline outlined in the agreement. Moreover, they need to understand the legal and financial implications of flat booking cancellations. They should be aware of their rights in case the developer violates the flat booking refund policy. Approaching a legal professional can be beneficial, especially for first-time homebuyers.

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