CA. Tarun Ghia

PUNE BRANCH OF ICAI DIRECT TAXES REFRESHER COURSE TOPIC : INCOME TAX ISSUES IN

TRANSACITONS OF REAL ESTATES -SECTIONS 50C, 56(2), 43CA,194IA(TDS), Cash Transactions in immovable properties

Speaker : CA. TARUN GHIAtarunghiaca@yahoo.co.in9821345687For Regular Direct Taxes & Professional

Updates Email to :tarunghiadirtaxes-subscribe@yahoogroups.co.in

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I. RELEVANCE OF SPECIFIC LAWS

II. TAXATION AND ACCOUNTING FOR BUILDERS AND DEVELOPERS Distinction between contractor, builder and developer

Section 145 & 115JB of the Income Tax Act, 1961- Section 211 of the Companies Act, 1956, Income Computation and Disclosure Standards

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AS 7 (old) & Decided case law under the

Income Tax Act AS 7 revised : Applicable to only contractors Percentage Completion Method

AS 9 for builders and developers

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Revenue recognition as per GN 2006

When seller has transferred to buyer all significant risks and rewards of ownership

When seller retains no effective control of the goods transferred to a degree usually

associated with ownership

When no significant uncertainty exists regarding the amount of the consideration

Where there is no uncertainty about ultimate collection

Guidance Note 2012

i.Guidance on application of percentage of completion method

  ii.Based upon the principles enunciated in AS 7

  iii.For real estate transactions and activities

iv.Having the same economic substance as construction contracts

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Will apply to :

a. .To all real estate projects commencing on or after April 1, 2012   b. Commenced before April, 2012 but

revenue being recognised for the first

time on or after April 1, 2012 c. At option from earlier date provided GN is applied to

all transactions which commenced or were entered into on or after such earlier date

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vi.Subject to conditions of para 10 and 11 of AS 9 vii.Legally enforceable agreement viii. Satisfaction of conditions signifying transfer of

significant risks and rewards

ix. Duration of project beyond 12 months spread over

different accounting periods

 

 

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Rebuttable Presumption

x. that the outcome of a real estate project can be estimated

reliably only when :  (a) All critical approvals necessary for commencement of the

project obtained (b) When stage of completion of the project reaches a

reasonable level of development :

Not if 25 % of the construction and development costs

not incurred (c) Atleast 25% of the saleable project area is secured by

contracts or agreements with buyers  

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(d) Atleast 10 % of the total revenue in respect of agreements of sale realized to be eligible contracts

xi. Acts thereafter performed are, in substance, on behalf of the buyer like a contractor

xii. Percentage completion method on a cumulative basis

xiii. Project revenue and project costs to be recognised w.r.t. stage of completion and w.r.t. all project costs

xiv. Matching of costs with revenue

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xv. When it is probable that total project costs will exceed total eligible project revenues, the expected loss should be recognised as an expense immediately

Method of accounting for a builder/developerRoad ahead under IFRSsAccounting, Auditing and Tax issues in projects claimed u/s. 80IB(10)Issues in sec 35AD – for SRs & affordable housing schemes

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III. REAL ESTATE DEVELOPMENTBUSINESS AND PARTNERSHIPS/JOINT

VENTURES :  Joint developments

Distribution of assets on dissolution or otherwise :

Dissolution ReconstitutionRetirement

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Revaluation of assets & Credit to Partners

Sale of units by firm to a partner

Dissolution and discontinuation of business

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IV. DEVELOPMENT AGREEMENTS :

Implications of transfer of development rights  

Income Recognition and Measurement in development and sub-development agreements  

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 Taxability of income under a development agreement

Section 53A of TP Act : Section 2(47)(v) of I. Tax Act

Whether adventure in the nature of trade

Applicability of section 50C to developmentagreements

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Termination of a Development Agreement : Legal and tax consequences  MOU then DA : Legal & Tax consequences

Subsequent events : Revision in terms

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V. ISSUES IN PROVISIONS OF SECTIONS 50C, 56(2), 43CA , 194 IA OF THE INCOME TAX ACT, 1961

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