GST on forfeiture of advance received for sale of land

sale of land is typically exempt from GST as per Schedule III of the CGST Act, 2017, which deals with activities or transactions that are neither a supply of goods nor a supply of sesrvices. 

If the advance was received towards the sale of land and was forfeited due to non-payment by the customer as per the agreement, it might not attract GST since the sale of land itself is exempt.

any how see the latest notifications, guidelines by the GST Counsil or CBIC website would be advisable. They can provide more tailored guidance based on the specifics of the agreement and applicable GST laws in India. 

sale of land is typically exempt from GST as per Schedule III of the CGST Act, 2017, which deals with activities or transactions that are neither a supply of goods nor a supply of sesrvices. 

If the advance was received towards the sale of land and was forfeited due to non-payment by the customer as per the agreement, it might not attract GST since the sale of land itself is exempt.

any how see the latest notifications, guidelines by the GST Counsil or CBIC website would be advisable. They can provide more tailored guidance based on the specifics of the agreement and applicable GST laws in India. 

Forfeiture of an advance for a land sale:

• GST: CBIC Circular 178/10/2022 clarified that forfeiture of earnest money or advances for breach isn't consideration for a supply ("tolerating an act"). Sale of land is in any case outside GST. So no GST.

• Income-tax: advance forfeited in the course of negotiations for transfer of a capital asset is taxable as Other Sources (Sec 56(2)(ix)) from AY 2015-16, and isn't reduced from the cost.

A genuine forfeiture of earnest money or an advance because the customer defaults on an agreement to sell land is generally not consideration for a supply under GST. Sale of land is covered by Schedule III, so the forfeited amount is ordinarily outside GST as well. This assumes the amount is retained as compensation for the customer’s default, rather than being payment for a separate service such as granting an option or tolerating a specified act.

The key workflow is to align the agreement, forfeiture notice and accounting treatment so the amount’s character is clear. Manual review of these records can be difficult, and automation reduces repetitive checks while professional judgment remains in control. At Jir AI, our 2,000+ AI agents and 650+ integrations streamline GST, ITR, TDS, TCS and other compliance workflows, helping reduce manual workload by up to 70%. For help streamlining your compliance workflow, connect with us on WhatsApp: https://wa.me/message/3HVOZ7HIY4ESC1