Real estate Company - Refund due to delay possession

[dhiraj kumar]

dear sir,

my Query is what may be the Accounting treatment & Accounting entry of refund of money to the buyer due to delay possession of Property.

Can we adjust the same with the outstanding money to be received from buyer if yes, what should be the accounting treatment for the same?

further what may be the Tax (GST or other) implication in above sase?

Thanks in advance!

[KASTURI SETHI]

This transaction is covered under Schedule-II (Serial No.5 (e) under Section 7 CGST Act)

ACTIVITIES [OR TRANSACTIONS] TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES

(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. GST is applicable

[Ganeshan Kalyani]

If you are going to give the money to buyer then there is not tax applicable. Because it is an income to the buyer and penalty for you. Penalty will look bad in books. You can explore giving discount to that extend.

[KASTURI SETHI]

The word, 'consideration' is nowhere mentioned in Schedule-II.

AI Summary

GST applicability on refunds for delayed possession: potential supply treatment versus compensation accounting and adjustment against receivables.
Accounting and tax treatment of refunds for delayed possession hinges on classification: treat the payment either as a reduction of sale consideration (discount/credit) and net against receivables if legally agreed, or as compensation/penalty charged to expense with separate refund entries. GST applicability is disputed-one view invokes Schedule II(5)(e) to characterise certain forbearance or tolerance obligations as supply (potentially taxable), while another treats the payment as non-taxable compensation or as a discount.