ca suresh babu s - sbsandco · 3 real estate business is one of the most lucrative businesses in...

Real Estate Business – Practical Insights

By

CA Suresh Babu S Managing Partner

M/s SBS and Company LLP [email protected]

+91 9440883366

mailto:[email protected]

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ROAD MAP

Over view of Real Estate

Business

Accounting Aspects of Real-Estate Development & Revenue

Recognition

J D A & Income Tax

Issues

Other Tax issues under Direct Taxes

ROAD MAP

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Real estate business is one of the most lucrative businesses in India.

2nd largest contributor to the Indian economy after Agriculture.

2nd largest contributor to India’s GDP – from 5 to 10.6%

2nd largest employer in the Country.

Supports more than 350 Industries.

Biggest contributor to the Indian Urbanization - Expected to increase from 26% in 2006 to 34% in 2026.

The Indian real estate market is expected to touch US$ 180 billion by 2020.

Strong Economic Growth.

Huge Housing requirement.

Progressive Investment climate.

Introduction (1/2)

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Key Operational Challenges faced by Real Estate Sector:

High funding cost

Stringent regulatory and tax framework

Unclear policies

Slow pace of infrastructure projects

High inflation and fiscal deficit

Non-availability of urban land (costly)

Rising cost of construction

Delay in approvals

Relatively low transparency

Introduction (2/2)

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Key areas for Planning & Structuring:

Challenges

Approvals

• RERA

• Local Authorities

Accounting & Taxation

• Accounting

• Direct Taxes

• GST

• Costing

Audit

• Statutory and Tax Audits

• ICDS

• Ind. AS

Labour Laws

• Minimum Wages; PF including EPF; ESI, Bonus, Gratuity, Cess etc

• Other Acts., Rules and Regulations

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REAL ESTATE BUSINESS

Construction & Development of Land

(CADOL)

Own Land / Purchase

Entering JDA

Purchase & Sale

Own land /Purchase

Entering JDA

Renting / Leasing (for short or long term)

Constructed Property

Land

Introduction to real estate business

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Accounting & Taxation

ACCOUNTING & TAXATION

Builder / Developer Land owner

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The revenue is recognised as per the AS-7 “Construction Contracts”.

Methods for Revenue Recognition

Methods of Revenue Recognition

CCM

Costs are accumulated until the contracted work is completed and are finally matched with contract revenue to ascertain profit or loss.

PCM

Revenue and costs are recognised by reference to the extent of contracted work completed.

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General provision of computation of business income prescribed U/s 28 to 44DB of Income Tax Act shall be applicable.

The following documents may be entered for sale of property:

Agreement of Sale

Sale Deed

Construction / Development/ Supplementary Agreements

Specified Agreements, if any

Documents required for sale of property (1/2)

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Cash Receipts

Limit on Cash Receipts & Cash Payments (1/2)

Section Conditions Cash Receipt

(Limit) Remarks Penalty

269SS Cash deposit or Cash loan or Specified sum (related to

land or building or both)

Rs.20,000/- per transaction

Amount should be received by account cheque/draft or electronically through bank account

100% of such receipt is levied u/s 271D

269ST No person should receive in cash in “Aggregate” from : Single Person or Single transaction or Transactions related to one

event or occasion

Rs.2,00,000/- 100% of such receipt is levied Applicable w.e.f 01.04.2017

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Cash Payments

Limit on Cash Receipts & Cash Payments (2/2)

Section Conditions Cash Payment

(Limit) Remarks Penalty

32/43(1) No depreciation on Capital Expenditure incurred in cash

Rs.10,000/- per day Amount should be received by account cheque/draft or electronically through bank account

No claim of Depreciation Applicable w.e.f 01.04.2017

40A(3) No cash payment in relation to expenditure

Rs.10,000/- per day Dis allowance of expenditure

269T No Repayment of Loan or Deposit or Specified sum in cash

Rs.20,000/- per transaction

100% of such payment u/s 271E

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NORMAL PROVISIONS

Person engaged in business or profession are :

required to maintain regular books of account and

get accounts audited

if their gross turnover or income exceeds the prescribed limit.

Meaning of Presumptive Taxation (1/3)

Relief to small tax payers

PRESUMPTIVE TAXATION

To get relief to from this tedious work of maintenance of Books of accounts, a small taxpayer.

can opt for presumptive taxation under section 44AD, 44AE or 44ADA

Upon satisfaction of the prescribed conditions.

Deemed net profit will be as under: 1. Non Cash Sales (Receipts through

Online Transfer, Account Payee Cheque/ Draft, NEFT, RTGS) – Deemed Net Profit shall be 6% of Total Turnover or Gross Receipts.

2. Cash Sales – Deemed Profit shall be 8% of Total Turnover or Gross Receipts.

To encourage non-cash payments through bank or digital channels

www.sbsandco.com

http://www.sbsandco.com/

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Consequences if assessee opt 44AD: If an assessee opts for presumptive taxation under this section, then he is required to

follow the same scheme for next 5 years.

If assessee failed to do so, then presumptive taxation scheme will NOT be available for next 5 years.

Any person opting for presumptive taxation scheme under section 44AD or 44ADA is liable to pay whole amount of advance tax on or before 15th March of the previous year

Failure to pay the advance tax attracts interest as per section 234B & 234C.

Any amount paid by way of advance tax on or before 31st day of March shall also be treated as advance tax paid during the financial year.

Presumptive Taxation - 44AD (3/3)

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Conversion of Capital Asset into Stock in Trade (U/s 45(2)) : Full value of consideration : Fair market value as on date of conversion is

treated as full value of consideration.

Year of taxability : Capital asset is chargeable to tax in the year in which such stock-in-trade is sold.

Business Income : The difference between Sale price and Fair market value as on the date of conversion is chargeable to tax under head “Profits and Gains of Business or Profession“.

Other Points : If the converted asset is sold in various years, the section will apply in each year in which

it was sold.

In the year in which property is actually sold, full value of consideration shall be stamp duty value on date of transfer as per sec 43CA.

Capital Gains - Deemed Transfers (1/5)

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X acquires land on 01.06.1981 for Rs.6,00, 000. He converts his land into stock in trade of his real estate dealing business on 18.02.2017 where fair market value of land was Rs.70,00,000/-. Stock in trade was sold by him on 18.03.2017 for Rs.90,00,000/-

In this case he would be liable to Capital gain in financial year (2016-17) as follows:

Business Income would arise in year of sale (2016-17):

Example: (2/5)

Full Value of Consideration 70,00,000

Less : Indexed cost of acquisition (6,00,000*1125/100) 67,50,000

Long Term Capital Gain 2,50,000

Sale proceeds of House Property 90,00,000

Less : Fair market value on date of transfer 70,00,000

Business Income 20,00,000

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Particulars

Transfer of assets by way of Capital Contribution

Distribution of assets on dissolution of Firm/AOP/BOI or otherwise

Section 45(3) 45(4)

Transferor Individual (member) Firm/AOP/BOI

Transferee Firm/AOP/BOI Individual (member)

Full Value of Consideration

The value of capital asset as recorded in the Books of firm/AOP/BOI

Fair market value as on date of transfer

Year of Chargeability

In the year in which transfer took place

In the year in which transfer took place


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Compulsory Acquisition under any law, C.G or R.B.I (u/s 45(5)):

Full value of consideration : Compensation or consideration received.

Year of taxability : Capital asset is chargeable to tax in the year in which such compensation / consideration is first received.

Other points : Any subsequent enhancement of compensation or consideration shall be chargeable in

the year in which such amount is received under head “Capital Gains”.

Sec – 194LA : Any payment made to resident on account of Compulsory acquisition shall be subjected to TDS @ 10%.However no deduction shall be made where payment does not exceeds Rs.2,50,000/-.

Any consideration received from Compulsory acquisition of Agricultural Land is exempt 10(37).


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Meaning and some of the features of such agreements are as follows: a. It is a Specified agreement between the parties.

b. The parties to this agreement do not form a Partnership firm or an AOP.

c. The land owner does not contribute his land to any entity as there is no separate entity assessable to tax.

d. The parties agree to share the Built up area or Revenue of the project.

e. The arrangement entered between the parties is made known through the sale agreement to the prospective purchasers.

f. Legal title, Control and domain over the property continues to remain with land owner till the completion of the project.

g. The parties to the agreements are normally responsible for their respective actions under the respective enactments as per the terms of Development Agreement.

h. The parties agree to file their respective Income Tax Returns separately in respect of income received or accrued to them.

Joint Development Agreement (1/2)

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Monetary Consideration

Non-Monetary Consideration: consists of a share in the land or building or both in the project

Operations

No heavy initial investment

Payment to landowner can be made as and when collections are made from the customer or by sharing of the built up area with the landowner

Benefit to Developer

Landowner with low technical insights on real estate development can now reap the benefits of higher consideration on sale of developed estate than outright sale of land

Benefit to Landowner

Joint Development Agreement (2/2)

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Objective of this amendment:

EXISTING: "Under the existing provisions of section 45, capital gain is chargeable to tax in the year in which transfer takes place except in certain cases. The definition of 'transfer', inter alia, includes any arrangement or transaction

where any rights are handed over in execution of part performance of contract, even though the

legal title has not been transferred. In such a scenario, execution of JDA between the owner of immovable property and the developer triggers the Capital gains tax liability in the hands of the owner in the year in which the possession of immovable property is handed over to the developer for development of a project.

Section 45(5A) – amendment (1/10)

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Objective of this amendment: AMENDMENT: With a view to minimise the genuine hardship which the

owner of land may face in paying capital gains tax in the year of transfer, it is proposed to insert a new sub-section (5A) in section 45 so as to provide that in case of an assessee being an individual or HUF, who enters into a specified agreement for development of a project, the Capital Gains shall be chargeable to income-tax as income of the previous year in which the Certificate of completion for the whole or part of the project is issued by the competent authority.“

In case of a JDA executed before 31-3-2017 but in respect of which the possession is given after 31-3-2017, that is, the transfer takes place after 31-3-2017, section 45(5A) would apply to the transferor.

Section 45(5A)– amendment (2/10)

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Applicability: The section 45(5A) applies if all the following conditions are fulfilled:

Section 45(5A)– applicability (3/10)

S. No. Conditions

(a) The Assessee is an Individual or HUF

(b) Capital gains arise to the assessee from transfer of a capital asset

(c) The capital asset is a land or building or both. Applies on any type of land

whether residential or commercial or agricultural or non-agricultural

(d) The transfer is made under a specified agreement

(e) The consideration for the assessee includes or consists of a share in the

land or building or both in the project

(f) The assessee has not transferred his share in the project on or before the

date of issue of the certificate of completion ("CC") for the whole or part of

the project as issued by the competent authority.

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Sec 194-IC. - Any person responsible for paying to a resident any sum by way of monetary consideration under JDA shall deduct tax @10 %

(w.e.f 01-06-2017)

Period of holding is reduced from 36 months to 24 months in case of immovable property, being land or building or both to treat it as short term capital asset;

Base Year shifted from April 1st, 1981 to April 1st, 2001 for all assets including immovable property. Base Year Shift helps the investor as now prices are more realistically calculated accounting for inflation.

Section 45(5A) does not apply to joint development agreements executed by two developers who are holding the land and buildings as stock-in-trade.

Section 45(5A)– other points (4/10)

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Only the year of charge of capital gains is postponed, However there is no change in the date of transfer/period of holding.

Hence, whether the land or building is short term or long term would depend on principles laid out in section 2(42A) and not on the basis of postponement of taxation u/s 45(5A).

This section states that the taxability for land owner will arise only in the year of receipt of completion (part or full) certificate for the real estate project irrespective of actual time of transfer of land, execution of agreement etc. This will determine the period of holding of the asset as well.

Under JDA, Land owner receives few units of building as a consideration which might be sold further by land owner. In that case cost of acquisition would be deemed consideration as per section 45(5A).

Likewise, the indexed cost of acquisition, which is linked with the year in which an asset is "transferred" will remain the same under the general provisions as well as under section 45(5A).

Section 45(5A)– other points (5/9)

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Under 45(5A): After fulfilling the conditions

Example : • A, an individual enters into a JDA with a developer B on 21.05.2017. Under the agreement, A is to

receive Rs. 12 lakhs from B and 1,00,000 Sq.ft. of developed area in Vishakhapatnam. • The COC of the project is issued in FY: 2018-19 & the stamp duty value of the developed area as

on the date of issue of completion certificate is Rs. 5.04 crores. In such a case, • the full value of consideration received or accruing as a result of transfer would be

Rs. 5.16 crores (Rs. 5.04 crores + Rs. 12 lakhs) • Capital gains shall be chargeable to tax in assessment year 2019-20 corresponding to the previous

year 2018-19.

Section 45(5A)– Consideration (6/10)

Stamp Duty Value

Cash CONSIDERATION

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Non-Applicability of Section 45(5A): If the assessee has transferred his share on or before the date of issue of the completion certificate by competent authority

Capital gains shall be deemed to be the income of the previous year in which such transfer takes place,

Normal provisions will apply for the purpose of determination of full value of consideration received or accruing as a result of the transfer.

For more clarification refer table below


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What Should be the Consideration ???

• On Built-up Area (Total SFT to be received

• On Land given to Developer (Developer Share)

• On Land & Built-up area (As per Development Agreement)

• On Total value of Land


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Dy. CIT v. Jai Trikanand Rao [2013] 37 taxmann.com 125 (Mum. - Trib.) The assessees were co-owners of property purchased by their ancestors in 1947. They entered a collaboration agreement with builders for developing land and getting flats built on it. Under the agreement, assessees got 56% of total built-up area and transferred 44% of land to builders. It was held that consideration for transfer of 44% land was cost of construction of 56% built-up area, which was to be incurred by builder.

ITO v. N. S. Nagaraj [2014] 52 taxmann.com 511 (Bang. – Trib The Tribunal observed that full consideration was the cost of construction incurred by the builder on the assessee's share of constructed area, because the assessee would receive constructed area in lieu of the land share. Whatever is the expenditure incurred for constructing that area was a consideration in kind to the assessee.

Section 45(5A)– case laws (9/10)

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Prabhandam Prakash v. ITO [2008] 22 SOT 58 (Hyd. - Trib.) The promoter was to give 43% of built-up area to assessee in new complex and 57% of this area was to be owned by promoter. It was held that cost of construction of 43% of built up area was to be total sale consideration for assessee for transferring land and existing structure

CIT v. Khivraj Motors [2015] 62 taxmann.com 305 (Kar.) The assessee arrived at consideration by taking cost of construction at Rs. 800 per sq. ft. which was agreed upon between parties. However, cost of construction at Rs. 800 per sq. ft. was substituted by the AO by project cost. It was found that builder paid non-refundable amounts to landlord and tenant to acquire vacant possession of property. Further, advertisement cost had been incurred by him. It was held that these amounts could not be taken as part of cost of construction.

Section 45(5A)– case laws (10/10)

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Special Provision for Full value of Consideration :

The very purpose of this section is that undisclosed income arising as Capital Gain should be taxed in the hands of the assesse.

The section states that :

• The asset is the Capital Asset (land or building or both)

• Value is less than the value adopted by authority of a State Government

for the purposes of section 48 the value shall be “The value so adopted or assessed by Stamp valuation Authority shall be the Full value of the Consideration received or accruing as a result of such transfer”.

Section 50C - Deemed Sale Consideration (1/3)

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The new proviso inserted by Finance Act 2016 w.e.f 01.04.2017 is a rationale step by Income Tax Simplification Committee (Easwar Committee) which removed the hardship of assesse.

“Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer”.

This amendment says stamp duty valuation of property on the date of execution of the agreement to sell should be adopted instead of the valuation on the date of execution of the sale deed if the agreement date and registration dates are different.


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FMV by Valuation Officer is higher than the Stamp duty value :

a. If the value of Land/building assessed by the Assessing officer (AO) is higher than the market value and the assessee object such value. The AO may refer it to Valuation Officer for valuation.

b. The AO should take value of land/building as Stamp duty value assessed by himself or FMV assessed by Valuation Officer ,whichever is lower.

Stamp duty value assessed is more than fair market value:

a. If the assesse claimed before Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub section (1) exceeds the fair market value of the property as on the date of transfer, the AO that he may refer the valuation of capital asset to Valuation officer.


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Fair Market Value Deemed to be Full Value of Consideration:

This section is applicable when there is “Transfer” of capital asset. Such transfer should be an absolute transfer under section 2(47) of the Income Tax Act, 1961.

Applies to cases where consideration is present (received or accrued).

But cannot be Determined

Say for land and building consideration is unascertainable or cannot be determined.

In such cases, Fair Market value of such land and building as on the date of transfer shall be deemed to be the full value of consideration.

Section 50D

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PARTICULARS SEC 54 SEC 54F SEC 54EC

Exemption to be claimed Individual/ HUF Individual/ HUF Any Person

Capital Asset Long Term Long Term Long Term

Eligible Specific Asset Residential HP Any LTA (other than Residential HP)

Any LTA

Type of asset should be acquire to get the benefit of exemption

Purchase within 1 year before transfer or 2 years after transfer or Construction within 3 years after the date of transfer

Within 6 Months from the date of Transfer

Amount Exempted Investment in new asset or capital gain whichever is lower

Capital Gain*Amount Invested/ Net Sale Consideration

Investment in new asset or capital gain whichever is lower

Exemptions (1/3)

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Conditions or Exemption revoke in a subsequent year

If the new asset is transferred within 3 years of its acquisition.

a) Owns more than one residential house property as on the date of transfer

b) Within one year before the date of transfer of original asset, there is a purchase of other residential house property other than new house.

c) Within two / three years of transfer of original asset, assesse had purchased / constructed another residential property other than new asset.

If the new asset is transferred or it is converted in to money or a loan is taken on security of the new asset within 3 years of its acquisition.

Exemptions (2/3)

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Exemption revoked- taxable as LTCG/ STCG

STCG LTCG LTCG

Scheme of Capital Gains Account deposit is

applicable

Yes Yes NO

Investment In India only

Number of Properties One One Rs. 50L in NHAI or REC or any Notified Bonds by CG

Deemed sale consideration

Section 50C may apply Section 50C may apply only in case of “Land”

Section 50C may apply

Exemptions (3/3)

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Where immovable property say land and building is received in form of Gift, the taxability is as follows :

Afmpvwiw-3wmmm ,l

Notional Income

Particulars 56(2)(vii) 56(2)(x)

Provision in force Till 31.03.2017 On or after 01.04.2017

Recipient Individuals and HUF All assesse

TAXABILITY : If the asset is received Taxable Value :

Without consideration i.e.,Stamp duty value > Rs. 50,000 • Stamp duty value

With Consideration is less than stamp duty value by an amount exceeding Rs.50,000

• Stamp duty value of property as exceeds consideration as per the Act

Gifts received from following are not taxable:

Relative Under will / by Inheritance

On occasion of marriage of individual Local Authority

In contemplation of death of payer or donor Trust or Institution registered U/s12AA

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Section 285BA read with rule114E

To keep a watch on high value, the Income-tax Law has framed the concept of “Statement of Financial Transaction or Reportable Account”

Under this statement the following is to be reported :

Any Purchase/Sale of immovable property for an amount of Rs.30,00,000 or more or

Valued by the stamp valuation authority at Rs.30,00,000 or more

Other Points :

Transaction is to be reported in Form 61A (under SFT- 012)

Reporting Person : Inspector General or Sub Registrar (appointed under

Registration Act)

Reporting Requirements

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Particulars 194IB - Payment of rent by certain

individuals or HUF 194J - Fees for professional or technical

services

Payer Individual / HUF Any Person

Payee Resident Payee Resident (not an individual/HUF)

Nature of Payment Rent Fees for Technical / Professional Services Remuneration or Commission or Royalty Sum referred to in clause (va) of sec 28

Rate of Deduction @ 5 per cent @ 10 per cent

Threshold limit Rs.50,000/- per month Rs. 30,000/-

Other Point to be considered

Rent - Payment, made under any lease, sub-lease, tenancy or any other agreement or arrangement

Assesses who are engaged in the business of operation of call centre tax is to be deducted @ 2 per cent

Due date to deposit tax Within 30 days Government deductee: Same day of deduction Other deductee : Within 7 days

Form 26QC

Certificate of deduction Form 16-C (to be issued by deductor)

Tax Deducted at Source (1/7)

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Particulars 194C - Payment to Contractors

Payer Specified Person

Payee Resident Contractor

Rate of Deduction 1 % - In case of Individual or HUF 2 %- In case of any other person

Threshold limit

Single payment – Rs.30,000/- Aggregate of payments – Rs.1,00,000/-

TDS in case of Transport Contractor

Shall not Deducted provided : Contractor Furnishes his PAN & Does not own more than 10 goods carriage at any time during the p.y &

provides declaration to that effect.

Due date to deposit tax Government deductee: Same day of deduction Other deductee : Within 7 days

Certificate of deduction Form 16-A on quarterly basis (to be issued by deductor)

Any payment by Individual or HUF to resident contractor for per personal purpose is not subjected to TDS


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Particulars 194H - Commission or brokerage

Nature of payment Any payment of commission or brokerage to a resident person (other than an

individual or a HUF)

Amount of Deduction @ 5 per cent

Exception Where amount or aggregate of amount does not exceed Rs.15,000/- no TDS is deducted.

Other Points :

However, an individual or a HUF, whose Total sales/Gross receipts/Turnover from the business or profession carried on by him exceeds the monetary limits u/s 44AB during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, they shall be liable to deduct income-tax under this section.

No deduction shall be made on any commission or brokerage payable by BSNL or MTNL to their public call office franchisee


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Particulars 194IA - Payment on transfer of certain immovable property

Transferor Resident Transferor

Transferee Any person

Person liable to deduct Tranferee

Nature of Payment Consideration for transfer of immovable property(Other than agricultural land)

Rate of Deduction @ 1 per cent

Threshold limit Rs.50,00,000/-

Consequence of Non furnishing of PAN

Tax is to deducted at higher of the following rates: the rate prescribed in the Act; at the rate in force, i.e., as mentioned in the Finance Act; or at the rate of 20 per cent

Due date to deposit tax Within 7 days

Form 26QB

Certificate of deduction Form 16-B (to be issued by deductor)

Provisions relating to Tax Deduction and Collection Account Number, shall not apply.


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Particulars 195- Other Sums (TDS on Non-Residents payments

Payer Resident

Payee Non-Resident

Nature of Payment Any sum paid (including for purchase of immovable property)

Rate of Deduction At rates in force

Threshold limit No threshold limit

Due date to deposit tax Within 7 days

Form 27Q (quarterly) returns

Certificate of deduction Form 16-A

Other Points : Payer should obtain TAN. The same can be obtained by applying in Form 49B electronically. He should have his own PAN number and PAN number of the NRI payee

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Section 197 – Certificate for deduction at lower rate If tax is deducted at source under section 192,193,194,194A, 194C,

194D,194G, 194H, 194I, 194J, 194LA & 195

Assessing Officer shall give him certificate so as to non-deduction of tax on any of the income received by the recipient.

1. • Assesse feels that no or lower rate of TDS

should be there .

2. • Assessing Officer is satisfied with the same.

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Particulars Disallowances – Non Residents

40a(i) Disallowances –

Residents 40a(ia) Disallowances – Non

Residents 40a(ib)

Income Interest, Royalty, Fees for technical services or Other sum

Any sum paid or payable

Any consideration paid or payable for specified service

Payable • Outside India or • In India to non-resident

- -

Tax Deductible TDS TDS Equalisation levy

Violation • Such Tax has not been deducted • Having deducted, has not been paid on or before due date of furnishing the return

Amount of disallowance under head “PGBP”

100 % of such sum 30 % of such sum 100 % of such sum

Provided if such tax is deducted or paid in subsequent year the same shall be allowed as deduction in subsequent year.

Disallowances on payments made

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Consequences for non payment of TDS

Consequences for non payment of TDS

S. No. U/s Description

1 40(a) Disallowance of expenses in computing taxable income of payer. Allowance in the year of deduction

2 201(1) Recovery of tax not deducted / deposited or short deducted / deposited

3 201(1A) Interest @ 1% / 1.5% per month or for part of the month

4 221 Penalty – not exceeding the amount of tax not paid

5 271C Penalty – not exceeding the amount of tax not withheld

6 276B Prosecution

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Un-accounted income:

IMPLICATIONS OF UNACCOUNTED INCOME

TAX under 115 BBE of IT Act (A)

(A.1)

Self-Declaration

(A.1.1) Advance Tax Paid Total Tax

=77.25% (60% Tax +25% sc+3% cess)

(A.1.2) Advance Tax Not Paid Total Tax = 83.25% (+

Penalty U/s.271AAC @

10% of Tax)

(A.2)

Detected By AO

SEARCH u/s 132

(B)

(B.1) Income Admitted Total Tax = 107.25% Incl. Cess &penalty)

(B.2) Income Not

Admitted Total Tax = 137.25%

(incl. Cess & penalty)

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Disclosures in REAL ESTATE SECTOR

Tax Audit

Income Computation Disclosure Standards

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Amendments in Form 3CD so as to present “True and correct "view :

Form 3CD – Part A

Additions/Amendments in clauses

Nature of Item Response

Clause 4 (Newly added)

“Whether the assesse is liable to pay Indirect tax like excise duty, service tax, sales tax, customs duty, etc. If yes, please furnish the Registration Number or any other identification number allotted for the same.”

• The tax auditor should get management representation from the assesse a list of taxes applicable and obtain the copy of registration certificates available with assesse.

• If the assesse has multiple registrations, then get the all the certificates for proper disclosure

• If the assesse is liable but not registered, then this will come in qualification

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Form 3CD – Part B

Additions/Amendments in clauses

Nature of Item Response

Clause 11 Clause 11(a) Whether books of account are prescribed under Section 44AA, if yes, list of books so prescribed Clause 11 (b) List of books of account maintained and the address at which the books of accounts are kept.(even if maintained electronically) Clause 11 (c) List of books of account and nature of relevant documents examined

• In case the books of accounts are kept at more than one location then auditor is required to mention the details of address of each location along with the BOA maintained.

• Minutes and Statutory registers and

records should be maintained since inception as these are principle documents.

• The auditor should make a checklist of

the details asked and hand it over to assessee for getting the data.

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Addition/ Amendment

in Clauses

Nature of item Response

Clause 17 Where any land or building or both is

transferred during the previous year for a

consideration less than the value adopted or

assessed or assessable by any authority of a

State Government referred to in Section

43CA or 50C, please furnish

• Points to remember:

• The auditor has to report under this clause

about details the transactions done in

previous year which attracts section

50C/43CA as discussed earlier.

• Accounts/details of Fixed Assets,

investments and inventory.

• Refer to the accounts like rates and taxes,

legal fees etc. (to find out if there is any

expense booked in relation to transfer of

such asset).

Form 3CD – Part B

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Addition/ Amendment in

Clauses Nature of item Response

Clause 21(d) (d) Disallowance/deemed income under Section 40A(3):

A. On the basis of the examination of books of account and other

relevant documents/evidence, whether the expenditure

covered under Section 40A(3) read with rule 6DD were made

by account payee cheque drawn on a bank or account payee

bank draft. If not, please furnish the details.

A. On the basis of the examination of books of account and other

relevant documents/evidence, whether the payment referred

to in Section 40A(3A) read with rule 6DD were made by

account payee cheque drawn on a bank or account payee

bank draft If not, please furnish the details of amount deemed

to be the profits and gains of business or profession u/s

40A(3A):

This new insertion has brought additional

reporting under form 3CD regarding the cash

expense.

The auditor has to report two things

specifically;

That the cash payment during in the previous

year did not exceed Rs. 10000 per day.

That the expense allowed previously in

preceding years through accrual

concept, for which cash payment is

made beyond Rs. 10,000 should be

treated as deemed income and reported

here.

The auditor need not obtain any certificate

from assesee that section 40A(3) is duly

complied , if complied.

Form 3CD – Part B

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Form 3CD – Part B

Additions/Amendments in

clauses Nature of Item Response

Clause 28

(Newly added

clause)

Whether during the previous year the assessee

has received any property, being share of a

company not being a company in which the

public are substantially interested, without

consideration or for inadequate consideration as

referred to in Section 56(2)(viia), if yes, please

furnish the details of the same.

This is applicable in case of Firms or Private

Limited Company.

The auditor has to report about any property

received as a share from above assesse without

consideration or inadequate consideration.

Section 56(2)(viia)

If the firm or Pvt Ltd Company (which stock not

traded publicly on regular basis) receives shares

without/inadequate consideration then

If no consideration : FMV > 50000 , then FMV

is taxable

If inadequate consideration : Such

consideration – FMV exceeds 50000 then such

difference is taxable.

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Form 3CD – Part B

Additions/Amendments in


Clause 31 Reporting requirement:

a) Particulars of each loan/ deposit which exceeds the limit u/s

269SS

b) Particulars of each “specified sum” which exceeds the limit

u/s 269SS during previous year.

c) Particulars of each repayment of loan/deposit ‘made’,

exceeding the limit u/s 269T during previous year.

d) Particulars of each repayment of loan/deposit ‘received’,

exceeding the limit u/s 269T otherwise than by a cheque or

bank draft or use of electronic clearing system through a

bank account during previous year.

e) Particulars of each repayment of loan/deposit ‘received’,

exceeding the limit u/s 269T received by cheque or bank

draft which is not an account payee cheque or bank draft

during the previous year.

The changes in this clause includes the reporting

about the amendments effected in section 269SS

and 269ST vide

Notification vide No.58/2017 dated 3rd July, 2017 *

It requires reporting by the recipient of such loan

and deposits or specified advance which has been

repaid

It has increased the scope of reporting for section

269SS and 269T

(Given in brief about amendment , below the

table)

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Form 3CD – Part B Additions/Amendments in


Clause 40 The details required to be furnished for principal items of

goods traded or manufactured or services rendered for

Previous year and Preceding previous years.

1. Total turnover of the assessee

2. Gross profit/turnover

3. Net profit/turnover

4. Stock-in-trade/turnover

5. Material consumed/ finished goods produced

Now, preceding years’ data should also be

provided in terms of ratios.

In case, the earlier year’s form 3CD was prepared

and signed by someone else then a suitable note

should be given, if relied on that.

Clause 41 Please furnish the details of demand raised or refund issued

during the previous year under any tax laws other than Income

Tax Act, 1961 and Wealth tax Act, 1957 along with details of

relevant proceedings

• The tax auditor shall obtain a copy of all the

demand/ refund orders issued by Govt.

authorities during the previous year under

any other law apart from IT Act, Wealth Tax

Act.

• The cess /duty would not be covered.

• Disclose the refund/demand orders received

during PY , pertaining to PPY

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Penalty for failure to get accounts Audited: (U/s 271B)

If the assesse fails to get his accounts audited or furnish a report of such audit u/s 44AB, Penalty of

• ½ of total Sales, turnover or gross receipts Or

• Sum of Rs. 1,50,000 w.e.is lower (w.e.f.1-4-2011)

No penalty shall be imposed, if assesse proves that there was reasonable cause for such failure.

Penalty of Rs.10,000/- is levied for furnishing incorrect information in reports or certificates by an accountant. (U/s 271J)

Tax Audit – 44AB

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Amended U/s 145(2), 10 ICDS notified vide notification 87/2016 dated 29th September, 2016 and Notified ICDS applicable from AY 2017-18.


ICDS Name of the ICDS

I Accounting Policies

II Valuation of Inventories

III Construction Contracts

IV Revenue Recognition

V Tangible Fixed Assets

VI Changes in Foreign Exchange Rates

VII Governments Grants

VIII Securities

IX Borrowing Costs

X Provisions, Contingent Liabilities and Contingent Assets

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Applicability: All assesses (other than an individual and HUF not required to get accounts audited U/s.

44AB) following mercantile system of accounting. All partnership Firms and LLP following mercantile system;

• irrespective of whether audit required u/s 44AB or not • having “Income from business or Profession” and “Income from Other Sources

Non- Applicability: To individual/HUF not carrying on business or profession. Person with only income from other sources following Cash system of accounting. Not applicable where books of accounts not maintained. Persons following cash system of accounting. Individual/HUF falling under presumptive tax not subject to audit u/s 44AB –CBDT Circular No.

10 of 2017 dated 23rd March 2017. Other heads of income - computation of capital gain, House Property, etc., For Sections 68, 69, 69A and 69B, books of account are relevant.


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Other Points Tax auditor is required to certify that the computation of total income is made in

accordance with the provisions of ICDS –( accordingly the Form 3CD containing the details)

The net effect on the income due to application of ICDS is to be disclosed in the Return of Income

Best judgment assessment is made when A.O is not satisfied about:


U/s 144 is attracted

1.Correctness or completeness of the accounts.

2.Method of accounting is not regularly followed.

3.Income not computed as per ICDS.

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Disclosure Requirement w.r.t Form 3CD

Under clause 13 ”New sub clause is added as under”

(d) Whether any adjustment is required to be made to the profits or loss for complying with the provisions of income computation and disclosure standards.

(e) If answer to (d) above is in the affirmative, give details of such adjustments:


ICDS Name of ICDS Increase in Profit (Rs) Decrease in Profit (Rs) Net Effect (Rs)

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ICDS II – Valuation of Inventories: Disclosure Requirement:

the accounting policies adopted in measuring inventories

Where standard costing has been used as a technique for measurement the cost, details of such inventories and a confirmation of the fact that standard cost approximate actual cost; and

the total carrying amount of inventories and its classification appropriate to a person

Clause 13(f)(ii) of the Tax Audit Report.

“When the inventory valued without including duties & taxes, the same should be included in valuation of inventory as per ICDS “


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ICDS III - Disclosure Requirement:

The methods used to determine the stage of completion of contracts in progress.

Clause 13(f)(iii) & (iv) of the Tax Audit Report.


S.No Description of Total Amount of For the year ended

1. Contract revenue recognized

2. Contract cost

3. Profit recognized

4. Advances received

5. Retention money

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ICDS IV - Disclosure Requirement:

for service transactions in progress at the end of previous year:

recognized profits less recognized losses up to end of previous year

the amount of advances received

the amount of retentions

Clause 13(f)(iv) of the Tax Audit Report.


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