CA Umesh Sharma
Arjuna (Fictional Character): Krishna, In India there are more than 76 thousand registered Real Estate Companies. Also, there are lakhs of small builders. To regulate this Real Estate sector, Central Government has passed the Real Estate bill on the 10th of March. Let’s predict how this Real Estate bill may affect Builders and its probable effect on Tax Compliance.
Krishna (Fictional Character): Listen Arjuna, In India, Real Estate is the second largest sector after agriculture. The Young Generation is also moving towards this sector and therefore we see many people in this business. In India, every 10 lakh people invest in buying their own houses. In this business, many a times one has to face difficulties. To protect Home buyers’ interest, bring Transparency, Efficiency and Responsibility, the Government has passed this Real Estate Bill. The Government has proposed the Income Tax and Service Tax exemption or deductions in the Budget 2016 on one side and on other side Real Estate Bill has brought regulations on developers, therefore it seems that an efoort has been made to strike a balance.
Arjuna: Krishna, Which are main features of this Real Estate Bill?
Krishna: Arjuna, The main features of Real Estate Bill are as Follows:
1. Real Estate means land, plot, flat, shop, business of sales and purchase, builders, developers, promoter, agents, etc. the specified projects are required to be registered.
2. Projects of at least 500 sq. meter or with 8 Flats will have to be registered compulsorily. If it is not registered, then offenders will be fined an amount equal to 10% of the Estimated Project Cost. Repeat offenders may have to go to jail.
3. Promoter Developer will now have to maintain separate bank account for each Project and 70% of the money received has to be deposited in the bank accounts. Expenses are to be incurred from this amount only.
4. This bill is also applicable to Commercial Projects.
5. The Promoter will have to sale on the basis of carpet area. Built-up Area will not be considered.
6. Both the buyer and Promoter will have to pay same interest rate for any delay on their part.
7. The Promoter is liable up to 5 years for any structural defect in the project. 2/3 of the buyers consent will be required for changing the Project plans.
8. Tribunal will now be required to adjudicate cases in 60 days.
9. For title of land, Insurance is to be made. This will benefit both buyers and Promoters.
10. For violation of orders of Tribunal or Regulatory Authority, there will be imprisonment up to 3 years for Promoters.
11. Deposit and Advance from buyers is to be taken in written agreement to sales. Similarly there are many regulations and small points, for construction business, which are to be studied accordingly for different states. As each state in India may have its own regularity authority in line with this Real Estate bill.
Arjuna: Krishna, Which are the provisions in this Bill that Promoters should ponder over within the frame of Income Tax?
Krishna: Arjuna, according to the provisions of this bill, Promoters should ponder over the following points relating to Income Tax:
1. Estimated Project Cost has been given importance, and therefore it should be shown properly. It will have its effect on Income Tax and Other laws. As each project Costing may have to be done.
2. Each Promoter will have to maintain separate books of accounts and separate bank accounts for each project. 70% amount received from customers is to be kept in these separate bank accounts and their usage and other details are to be maintained properly. Because of this, Project wise Profit and Loss, which may affect Income Tax assessments in some cases.
3. If Promoters have paid interest to customers or made title deed insurance then premium of the same, cost incurred for Repairs of Structural error, will be allowed as deduction in income tax.
4. Deduction for penalty for noncompliance of Real Estate Bill may not be allowed as deduction to Promoters.
5. Promoters may have to value Sales, Closing Stock, etc. on carpet area basis. This will make a huge difference in many cases.
6. Government has proposed 100% deduction for profits to an undertaking in housing project within 60 sq. meters in the Budget 2016 on fulfilling certain conditions. It will be interesting to see Real Estate Bills effect on it.
As this is on an infant stage many issues may crop up in the future.
Arjuna: Krishna, Which are the provisions of VAT on developer and its probable effect?
Krishna: Arjuna, If developer has booked or sold before receiving completion certificate, then in composition scheme VAT is payable at the rate 1% on advance amount or Agreement to Sale in Maharashtra State. According to provisions of this law, developers will have to receive Completion Certificate. In VAT rules, Real Estate related sales, etc. receipt, Agreement to sales, etc. will be required to be verified. Now Tax Officers, can get more information from Real Estate Bill website. As information of bookings will have to be regularly updated on this website.
Arjuna: Krishna, What are the probable effects of this bill and Service Tax?
Krishna: Arjuna, In service Tax also, if booking/sales are made before receiving Completion Certificate, then from now 4.5% service tax is payable. Also CENVAT is available on Input services. Input Services are received from Contractor, Architect, Agent, etc. Their list may also be updated on the website, according to Real Estate Bill provisions.
Arjuna: Krishna, What should one learn from this Real Estate Bill?
Krishna: Arjuna, This law is beneficial from the customer. Hence, builders cannot do anything as per their wishes from now on. Also, due to regulations, this sector may also have to face difficulties if rules are not followed. The Central and State Government have made major changes in this Sector, through this Real Estate Bill. In the above discussion, explanation for many issues are yet to be known. It can be known after the complete implementation and application of the Real Estate Bills. In every House its Door i.e, “Chowkat” is auspicious and of prime importance. It is said that every member of house should live life happily and shall not cross the moral and ethical Door i.e “Chowkat” of house. Thus in hindi, Builders ko Real Estate Bill ki “Chowkat” nahi to taklif “Chowpat”. It means Builders will have to work within the four corners/frame of the laws or else they may have to bear four times the trouble.
Dear Chartered Accountants,
Under Real Estate Bill, The applicant or appellant may either appear in person or authorize one or more chartered accountants to present his or its case before the Appellate Tribunal. New opportunity is there for Chartered Accountants in this new Real Estate Bill. Thus your comments, views, suggestion are always well come on this topic.
Author Bio
SIR,I HAVE TO ASK ONE QUESTION IS THAT ALL BUILDERS TOLD TO BUYERS THAT 33 % DEDUCTED BY LAWS. WHICH LAW IS ? EG. SUPPOSE 100 SQURES FLAT. BUILDER TAKE FULL PAYMENT BUT GIVE THE CONSTRUCTION ONLY 67 % SQURES FLAT. IS IT TRUE? I NEED THAT LAW WITH CLAUSE. I AM FROM GUJARAT.
What is the from effect dat of this bill?
There is one more important issue strikes to me that in most of the cases the builders do not provide completion certificate along with approved map of the property, issued by the concerned government authorities, at the time of registration of property in question to the owner. While taking other left over issues latter on this important issue may also be taken care of by the government .
“The Promoter will have to sale on the basis of carpet area. Built-up Area will not be considered” — from when will this be effective as well as is this rule applicable for under construction house which are still not completed as on today.