UNDER RERA ACT 2016 “IT IS VERY PROMINENT TO KNOW THE PROCEDURE HOW TO WITHDRAW 70-30 FROM 100% PAYMENT COLLECTION FROM CUSTOMERS BY THE PROMOTOR”
The Real Estate (Regulation and Development) Act, 2016 (RERA) was enacted to bring transparency, accountability, and efficiency to the real estate sector in India. One of the critical provisions of RERA is the mandate for promoters to maintain a separate RERA account for each real estate project. This provision ensures that 70% of the funds collected from buyers are used solely for the construction and development of the project, while the remaining 30% can be utilized for other purposes. In this article, we will explore the detailed procedure for withdrawing funds in the 70-30 ratio from customer payments as outlined under RERA.
The Real Estate (Regulation and Development) Act, 2016 (RERA) mandates the creation of a separate RERA account for each real estate project.
Here’s a general overview of how the funds can be used by the Promoter.
The typical requirement is that 70% of the funds collected from buyers must be kept in this “RERA ESCROW ACCOUNT and used for the construction and development of the project. The remaining 30% of the funds can be used by the developer for other purposes, but specific guidelines dictate how these funds are allocated and managed.
Know how these funds can be utilized?
A. 70% of Funds Collected in RERA Account can be used as follows:
1. Construction Costs: This includes expenditures on building materials, labour and other direct costs related to the physical construction of the project.
2. Land Payments: This portion can be used to pay for the cost of land or land-related charges that are necessary for the development of the project.
3. External Development Charges: Payments for external infrastructure development, such as roads, water supply, sewage systems, and other community facilities.
4. Statutory and Regulatory Charges: Costs associated with obtaining approvals, clearances, and permissions from various regulatory authorities.
5. Project Management and Supervision: Costs related to hiring project managers, consultants, and other professionals who oversee and manage the project’s progress.
6. Contingency Expenses: Funds can be used for unforeseen expenses.
B. 30% of Funds Collected (Developer’s Utilization)
1. Operational Costs: This may include costs for project administration, sales, marketing, and other operational expenses not directly related to construction.
2. Interest Payments and Loans: If the developer has taken loans for the project, a portion of this 30% can be used to service those loans or pay interest.
3. Administrative and Overheads: Includes costs for the developer’s corporate administration, overheads and other non-project-specific expenses.
“IT IS VERY PROMINENT TO KNOW THE PROCEDURE HOW TO WITHDRAW IN RATIO OF 70-30 FROM 100% PAYMENT COLLECTION FROM CUSTOMERS BY THE PROMOTOR”
We need to open 3 types of Current accounts for each project to handle 100% payment collection from customers.
Account 1: Realtors Current Account for receipt of 100% Collections from customers depositing account And Auto transfer by the banker to Account 2 and Account 3 in the ration 70:30 at end of day.
A separate screen is being developed by banker as per RBI Guidelines to Compliance with RERA Act for setting the Sweep between the three accounts.
Account 2: Realtors Current Account for deposit of minimum 70% of Collections- Funds to be transferred from Account 1. This account will be registered with RERA Authority.
Account 3: Realtors Current Account for Day to Day operations for receiving 30% of Collections (funds to be transferred from Account 1). However, Realtors Can decide for transfer of 30% of Collections to their other Operating CC/OD account instead of Current Account No.3
MOST IMPORTANT: Withdrawal from Account 2: (70%) Documents Required: The Realtor has to submit the following documents at the time of withdrawal from Account 2 (i) Certificate from the Architect, Engineer and Practicing Chartered Accountant- Who is holding not only ICAI Membership number but holding also Certificate of Practice other than Statutory Auditor of the Promoter’s Company “on the basis of work done calculation as per format prescribed by the State RERA Authorities”.
Conclusion : The RERA Act 2016 has established a robust framework to ensure that funds collected from homebuyers are utilized efficiently and transparently for real estate projects. By adhering to the 70-30 fund allocation rule and following the prescribed procedures, promoters can ensure compliance with the law while fostering trust among buyers. Understanding and implementing these guidelines is crucial for the successful execution of real estate projects under RERA.
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Author: CS Karan Singhania, CS-ICSI, LLB (Hons), MBA Finance, CA-Inter, Diploma in Cyber Laws (Govt. Law College, Churchgate, Mumbai). Author can be reached at [email protected].
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