“Understand the significance of Year-End Reconciliation in the Real Estate sector under RERA. Explore key aspects like project registration, financial management, compliance checklists, and reconciliation with stakeholders. Ensure accurate reporting to comply with legal, regulatory, and accounting requirements.”
Wishing the members and readers abundance in all financial endeavours, opportunities for wealth creation and wealth preservation. Greater financial peace of mind and contentment. May all your financial wishes come true!
We all have started a new financial year 2023-24 and in the process of closure of books of accounts for the previous financial 2022-23. Financial year end closure compliances refer to the various tasks and activities that need to be completed by an entity/person at the end or after its financial year to comply with legal, regulatory, accounting requirements and to report to all stake holders.
The reporting being specific to industry, the regulators constantly monitoring the developments of the industry and the eco-system. Real estate is not an exception to it. Post RERA all the stakeholders of the real estate cognizant about the RERA registration, periodical updates, funds utilisation reporting, approval of modification of plans and specifications, approval for change of promoters in the project, compliances to the advertisement and adherence to terms of the agreement of sale.
RERA being the new statute and regulators are notifying the various regulations, notifications etc based on their experiences, on government and stakeholders demand depending on the situation or circumstances that spew from time to time.
In this article, we would like to bring the important data points/details to be considered by the Real Estate entities (promoters of the real estate projects) considering the various aspects as mandated under RERA. The promoters and professionals shall consider and comply with the Regulatory Compliances to mitigate the risks –
1. Prior Registration of the project –
a. Section 3(1) of the RERA Act 2016 mandates the prior registration of the real estate project (building or plotted) before sale, marketing, invitation, collection of advances –
i. It is important for the professionals to consider while verification, reporting and certification, whether the promoter has advertised or collected money prior to registration of the project with the RERA Authorities. The same can be verified by looking at the bank account receipt, agreement of sale entered.
ii. The authorities have levied penalty for advertisement or collection of money prior to before RERA registration.
iii. Further the promoter might have allotted the unit against the advance / borrowing. If so, further emphasis should be made and verify the transaction to satisfy and comply with Section 3(1)
Eg., Balance Sheet of 31st Mar 2022 showing under Borrowings or current liabilities. During 2022-23, unit is allotted against such borrowings.
2. Financial management under RERA – Section 4(2)(L)(D) of the RERA Act 2016 mandates the promoter to deposit 70% of the amount realised from the allottees to the project RERA designated bank account from time to time –
a. Verify the total sales register or collection register.
b. Verify amount credited to project RERA designated bank account (RERA designated bank account can be verified by visiting https://rera.karnataka.gov.in/viewAllProjects)
c. Reconcile the collection and 70 % deposit. Any variances, collect the reasons for future references
d. Verify whether the promoter have collected the professional certificate of Engineer, Architect and Chartered Accountant Certificate for withdrawal of funds from the project RERA designated bank account from time to time. Excess withdrawal at any point of time shall be recorded and reported,
e. In case of Joint Development agreement, collect the details of units sold and amount realised by the landowner under Area Sharing arrangements, whether the 70 % of the realisation of landowner units is deposited into project RERA designated bank account. If not let the developer communicate and collect necessary undertaking and documents to protect from penal consequences (REFER RERA Bank Account directions 2020 issued by K RERA)
3. Compliance checklist and Reconciliation under RERA: preparation of reconciliation statements to ensure accuracy and completeness, as well as reconciling any discrepancies or differences between reports submitted with various stakeholders –
| Sl No | Stakeholder/s | Reconciliation items |
| 1 | RERA Authority – Compliance with Regulatory Requirements: | Ensuring compliance with various regulatory requirements, such as
a. filing of quarterly updates – b. annual audit annual reports c. application for extension of end date – Section 6 d. further extension of end date of the project – Section 7 e. Reporting and modification of plan and specifications in the project – Section 14 f. Advertisement guidelines – Section 11 and Section 12 g. Honouring the orders passed by the Authority or Adjudication officer for the complaints filed under Section 31 h. Engaging and Payment of commission or brokerage only to i. Following the agreement of sale |
| 2 | Bankers – Lenders | Inventory and receivable statements to arrive at Drawing Power. This document should be tally and reconcile with the reports submitted to Rera Authorities –
a. Total number of Sold units / b. Communication to the lenders for NOC from the lenders for the units sold and agreements entered. c. Receivables from the Sold units d. Unsold inventory as per books of accounts and average value of the receivables from unsold inventory to cover the balance / outstanding loans or borrowings. e. Status of construction progress of the project. |
| 3 | GST | a. Percentage of completion of the project
b. Total amount received and GST discharged on the amount received or due. c. Reporting of RCM transaction and discharge of liability (Legal Fees, Development rights, transport expenses etc) d. Availing the eligible Input Tax credit e. Satisfaction of 80 % criteria of registered GST purchases f. Discharge of unregistered GST purchases if any or lower than 80 % criteria g. Reversal of ineligible GST Input Tax Credits h. Reconciliation and allocation of GST incase of Mixed Development Project (Residential and Commercial) i. Reporting of occupancy or completion certificate (the gst officers are collecting the data from the Rera portal etc) |
| 4 | TDS deducted by the buyers @ 1 % U/s. 194 IA of Income Tax Act 1961 | a. Reconcile the total receipt of money from the allottees.
b. Check 26 AS whether 1 % has been credited against the receipt from the customers/allottees. c. If not, communicate the same to the allottees and insist them to remit and share the details. d. This will helps the revenue reconciliation vis-à-vis TDS Credits |
| 5 | Inventory Valuation – stock lying at the site or godown | a. Available or unsold inventory shall reconcile with Rera March quarter CA certificate with the books of accounts |
| 6 | Revenue Reconciliation |
a. Recognition of revenue as per Accounting Standard and Tax Standards and reconciliation with the data as provided to RERA – i.e., realisation of money from the allottees vis-à-vis revenue recoginsed based on % of completion of the project development work, realisation of money from the allottees vis-à-vis revenue to be recognised. Prior to Rera income or gst authorities relying on the data as |
| 7 | Provision for the delay compensation (delay in delivery of the unit to the allotees –
a. Based on Terms f the Agreement b. Based on the orders of the Authority or Adjudicating officer |
a. Provision of expenses for the delay compensation payable to the allottees as per the terms of the agreement and as per the RERA Act 2016 (SBI MCLR + 2% interest) – Section 13 read with K RERA Rules 8A
b. Applicable GST payable compensation payable on such delayed delivery of the project c. TDS by the promoter on such provision of expenses |
| 8 | Management Information System – MIS to Investors etc |
a. During the financial year, there b. It is advisable to reconcile the same with the data as reported with Rera and also as per books of accounts of the promoter. |
Sample Checklists –
(Similar checklists can be prepared for each of the compliance under Rera and capture the details)
| Registration Checklist
(in case project registered during the FY 2022-23 |
Estimated cost of Land As per RERA Registration | Estimated cost of Construction As per RERA Registration | Project RERA Designated Bank Account | Number of Inventory |
| Project RERA Registration Number and Project Name | Rs. XXXX | Rs. XXXX | 1. Bank Name
2. Account Number 3. IFSC Code |
XXX Units |
–
| Quarterly Updates | June 2022 | September 2022 | December 2022 | March 2023 |
| Due Date of Filing | 15th July 2022 | 15th October 2022 | 15th January 2023 | 15th April 2023 |
| Actual Filing Date | DD/MM/YYY | DD/MM/YYY | DD/MM/YYY | DD/MM/YYY |
| Architect Certificate – % of Completion | XX % | XX % | XX % | XX % |
| Engineer Certificate – Amount | Rs.XXXX | Rs.XXXX | Rs.XXXX | Rs.XXXX |
| CA Certificate – | ||||
| Construction cost incurred | Rs.XXXX | Rs.XXXX | Rs.XXXX | Rs.XXXX |
| Total Cost Incurred | Rs.XXXX | Rs.XXXX | Rs.XXXX | Rs.XXXX |
| Total % of Completion | XX % | XX % | XX % | XX % |
| Amount Eligible to withdraw | Rs.XXXX | Rs.XXXX | Rs.XXXX | Rs.XXXX |
| Actual withdrawn | Rs.XXXX | Rs.XXXX | Rs.XXXX | Rs.XXXX |
| Balance Available to withdraw | ||||
| Observation / Remarks |
–
| Advertisement | Mode
Print – Hoarding, Newspaper, Social media, website, FM, Calls etc |
RERA Registration Number as per RERA Guidelines | Remarks / Observation | |
| Date of Advertisement | ||||
| DD/MM/YYYY | ||||
We agree that there shall be a difference, if so, we recommend the promotes to keep the reconciliation statement in order to protect themselves in the future from any inadvertent notices from any of the tax authorities.
Conclusion – We recommended the promoters of the project to submit the uniform data to all the stakeholders in order to achieve the objectives of the RERA Act and also to comply with different statutes failing which the chances of penal action or penalty for such non-compliance. Also, it is the responsibility of the professionals to advise their clients appropriately/in accordance with the RERA Act, Rules, Notifications, Circulars.
The author is a partner at M/s.Venu & Vinay, Chartered Accountants, Bengaluru, He can be reached on vinay@vnv.ca
Author Bio
What is the remedy if RERA itself is withholding its Final Order in Complaint case against Builder / Promoter for non-delivery of possession of Flat booked in April 2006 for delivery by Oct 2008 and re-assurance after receiving 95% payment by Mar 2012 and still waiting …. for last 17 years. Jai shree Ram !