Summary: The increasing integration of RERA disclosures with tax administration has made it imperative for promoters, developers, landowners, and professionals to align project-wise reporting under RERA with revenue recognition principles under Section 43CB of the Income Tax Act and Ind AS 115. Since RERA mandates extensive disclosures at registration, quarterly updates, and annual audits—including project costs, sales data, construction progress, bank account utilization, and certifications by architects, engineers, and Chartered Accountants—any inconsistency with tax returns, audit reports, or financial statements can trigger scrutiny, reassessments, penalties, and litigation. Authorities are increasingly using RERA databases to verify income recognition methods such as Percentage of Completion Method (POCM) and Completed Contract Method (CCM). The article highlights the need for periodic reconciliations, robust audit trails, project-specific accounting, and proactive due diligence by professionals to mitigate regulatory exposure, disciplinary proceedings, and disputes arising from discrepancies between RERA and tax compliances.
Aligning RERA Compliance Free Income Tax Differences / Litigations
Promoters (Land owners, Developers and Builders etc) and professionals of real estate projects or business must align Real Estate (Regulation and Development Act) 2016 (RERA) mandated project-wise disclosures with Income Tax provisions under Section 43CB and Ind AS 115 to ensure seamless revenue recognition, whether applying Percentage of Completion Method (POCM) for eligible construction contracts or Completed Contract Method (CCM) for self-developed contracts / sales.
Periodical and regular reconciliation between quarterly progress report RERA Form 4 (Karnataka) filings, 70% RERA Separate bank account utilization certificates, RERA Annual Audit report & certificates in Form 7 and Income Tax audit / computations supported by ledgers, statements, Chartered Accountant’s (CA) certificate and threshold verifications (e.g., 25% costs/area/revenue) prevents discrepancies that trigger notices, additions, or penalties from authorities.
Proactive dual reviews by CAs, consistent method application across years, and detailed audit trails for cost-to-cost ratios or possession milestones ensures compliance harmony, minimizing disputes as evidenced in various CIT / ITAT / HC rulings favouring well documented alignments.
As we all know, the Income Tax Department/revenue authorities insist on reporting transactions or declaring income using the Percentage of Completion Method (POCM) rather than the Completed Contract Method (CCM). However, under certain accounting standards like Ind AS and specific situations, promoters/asseesses have the option to declare income and discharge taxes using the CCM under the Income Tax Act. Post RERA implementation, promoters must mandatorily report project details at the time of registration, at the time of quarterly filings, annual audit supported by professional certificates from engineers, architects, and practicing Chartered Accountants (Proviso 2 to Section 4(2)(l)(D) read with respective state RERA Rules) –
During application for Grant of RERA Registration –
a. Details of Land – Extent of Land, Land Conversions, change of Land use approval and Cost of the Land (acquisition cost of guidance value which ever is higher) (Karnataka RERA Rules 5)
b. Details of Carpet Area, Common Area, Saleable Area – indicates the total Saleable Area in the project.
c. Details of Specification of the equipment’s provided in Project – Like Lifts, Back-up Generators, Motors, Power equipment’s like Transformers, firefighting equipment’s etc
d. Details of Specification of the materials used in the construction of the Project – Like quality of materials used, brand, price range
e. Details of amenities, facilities provided / offered in the project – like community hall, parks, pool, health club, convenient stores etc
f. Details of Costs towards obtaining Approvals, By the time of filing the application for RERA registration, promoters must have obtained major approvals, NOCs, and incurred significant costs towards the same including approval fees, government levies, and related expenses.
g. Details of the estimated cost of Construction / Development costs – Karnataka RERA insisting to provide and share the estimated cost of constructions duly certified by the Engineer along with the Quantity of materials etc
h. Architect and Engineer Certificates certifying the Estimated Cost of Construction / Development of the Project
i. Borrowings against the project and encumbrances if any
j. Source of funds for the development of the project, of which –
a. Amount incurred/spent already on the date of filing the application
b. Balance to be spent – source for the balance to be spent to be declared.
During Quarterly filing / progress reporting / RERA Annual Audit-
a. Total number of units available and Sold / Booked
b. Total number of parking booked / allotted
c. Agreement value of each plot or apartment
d. Amount collected from each plot or apartment
e. Amount deposited in RERA Separate bank account
f. Amount /expenses incurred during the quarter and since inception of the project – under various heads like –
a. Construction
b. Off-site costs like admin, head office costs, consultants, audit fees etc
c. Approvals costs
d. Taxes
e. Interest / borrowing costs
k. Total Borrowings for the project and its utilisation
l. Amount eligible to withdraw from the RERA separate bank account
m. Architect Certificate certifying the status of progress of work of various facilities / activities in the project like –
a. Construction status of the building starting from basement, plinth, ground, upper floors etc
b. Status of services like water, sanitation, electricity
c. Status of installation of equipment’s like Lifts, Motors, back-up generators Transformers etc
d. Status and % completion of amenities like parks, club house, pool, community halls etc
n. Engineer Certificate certifying the total value of amount incurred to bringing up the project or value of the men, material, resources used for development of the project as on that date.
o. Chartered Accountant Certificate certifying the values/amounts as per books of accounts maintained by the promoter of the project
p. Borrowed for the projects, utilisation and balance payable
q. Pictures or photographs of the development works in the project.
All the above financial and non-financial information, details, documents, certificates, affidavits etc shall be submitted and uploaded on the web portal of the RERA Authority on registration of the project and during every quarter / annual audits. Most of these details are available for public access etc.
In recent days, revenue authorities like Income Tax department, GST department started accessing / using these data base and comparing the same with the income offered, tax discharged through Tax filings etc (income tax / gst). In few specific instances, these authorities have approached the RERA Authorities and seeking additional information, documents, certificates etc.
Conclusion and advice to the professionals –
Given the dynamic RERA information updated quarterly with professional certificates from architects, engineers, and Chartered Accountants, alongside bank statements and progress photos, CA’s/ auditors must prioritize access to these details during tax audits, reporting, and filings to ensure alignment and reconciliation.
In recent instances, aggrieved home buyers (allottees) have increasingly named professionals such as Chartered Accountants, architects, and engineers as respondents in RERA complaints, making them co-parties alongside promoters and transforming this into an emerging trend. Compounding this risk, some complainants have escalated matters to the ICAI Disciplinary Committee, seeking action against CAs for allegedly issuing erroneous certificates related to project progress, fund utilization, or compliance under Section 4(2)(l)(D). This is the critical need for professionals to proactively mitigate regulatory and litigious risks beyond mere financial exposure through rigorous due diligence, independent verification of project data from RERA portals, retention of comprehensive audit trails, and issuance of qualified certificates where factual discrepancies arise, thereby safeguarding professional reputation and averting disciplinary proceedings.
Key Audit Requirements –
Promoters often lack complete records, so professionals should proactively obtain them from RERA advisors, consultants, or the state RERA portal for verification against financials.
Common Drawbacks/Challenges
a. Misalignment between RERA project progress (Form 4) and tax computations triggers scrutiny, additions, or penalties.
b. Missing documentation for cut-off testing, project-wise ledgers, or standalone selling prices undermines verification.
Reconciliation Challenges –
Inconsistent books across RERA filings, Ind AS 115, and Income Tax returns without robust audit trails invite notices, particularly for entities managing multiple projects where RERA mandates project specific tracking complicates entity level reconciliation.
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The author CA.Vinay Thyagara is a partner at M/s. Venu & Vinay Chartered Accountant and extensively practice and Training RERA across India. He can be reached at vinay@vnv.ca
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