CA. Tarun Ghia VADODARA BRANCH OF WIRC OF ICAI SEMINAR ON REAL ESTATES Topic : Accounting and Taxation and related legal aspects in Real Estate Industry Speaker : CA. TARUN GHIA For Direct Taxes Updates to : For Property updates to :

CA. Tarun Ghia I. RELEVANCE OF SPECIFIC LAWS II. TAXATION AND ACCOUNTING FOR BUILDERS AND DEVELOPERS Distinction between contractor, builder and developer Section 145 & 115JB of the Income Tax Act, Section 211 of the Companies Act, 1956

CA. Tarun Ghia AS 7 (old) & Decided case law under the Income Tax Act AS 7 revised : Applicable to only contractors Percentage Completion Method AS 9 for builders and developers

CA. Tarun Ghia Revenue recognition as per GN 2006 When seller has transferred to buyer all significant risks and rewards of ownership When seller retains no effective control of the goods transferred to a degree usually associated with ownership When no significant uncertainty exists regarding the amount of the consideration Where there is no uncertainty about ultimate collection

Guidance Note 2012  i.Guidance on application of percentage of completion method   ii.Based upon the principles enunciated in  AS 7  iii.For real estate transactions and activities  iv.Having the same economic substance as construction contracts CA. Tarun Ghia

Will apply to :  a..To all real estate projects commencing  on or after April 1, 2012  b. Commenced before April, 2012 but revenue being recognised for the first time on or after April 1, 2012  c. At option from earlier date provided GN is applied to all transactions which commenced or were entered into on or after such earlier date CA. Tarun Ghia

 vi.Subject to conditions of para 10 and 11 of AS 9  vii.Legally enforceable agreement  viii. Satisfaction of conditions signifying transfer of significant risks and rewards  ix. Duration of project beyond 12 months spread over different accounting periods CA. Tarun Ghia

Rebuttable Presumption  x. that the outcome of a real estate project can be estimated reliably only when :  (a) All critical approvals necessary for commencement of the project obtained  (b) When stage of completion of the project reaches a reasonable level of development : Not if 25 % of the construction and development costs not incurred  (c) Atleast 25% of the saleable project area is secured by contracts or agreements with buyers  CA. Tarun Ghia

 (d) Atleast 10 % of the total revenue in respect of agreements of sale realized to be eligible contracts  xi. Acts thereafter performed are, in substance, on behalf of the buyer like a contractor  xii. Percentage completion method on a cumulative basis xiii. Project revenue and project costs to be recognised w.r.t. stage of completion and w.r.t. all project costs  xiv. Matching of costs with revenue CA. Tarun Ghia

 xv. When it is probable that total project costs will exceed total eligible project revenues, the expected loss should be recognised as an expense immediately Method of accounting for a builder/developer Road ahead under IFRSs Accounting, Auditing and Tax issues in projects claimed u/s. 80IB(10) Issues in sec 35AD – for SRs & affordable housing schemes

CA. Tarun Ghia III. DEVELOPMENT AGREEMENTS : Implications of transfer of development rights Income Recognition and Measurement in development and sub-development agreements

CA. Tarun Ghia Taxability of income under a development agreement Section 53A of TP Act : Section 2(47)(v) of I. Tax Act Whether adventure in the nature of trade Applicability of section 50C to development agreements

CA. Tarun Ghia Termination of a Development Agreement : Legal and tax consequences MOU then DA : Legal & Tax consequences Subsequent events : Revision in terms

CA. Tarun Ghia Joint Developments IV. Issues in provisions of sections 50C and 56(2) with proposed amendments V. Issues in proposed provisions in section 43CA covering transfers by builders and developers VI. Issues in proposed TDS provisions in sec. 194 IA