Real estate-business-sbs-v7

Real Estate Business – Practical Insights
By
CA Suresh Babu S
Managing Partner
M/s SBS and Company LLP
suresh@sbsandco.com
+91 9440883366

www.sbsandco.com2
ROAD MAP
Over view of
Real Estate
Business
Accounting Aspects of Real-Estate
Development & Revenue
Recognition
J D A &
Income Tax
Issues
Other Tax
issues under
Direct Taxes
ROAD MAP

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 Real estate business is one of the most lucrative businesses in India.
 2nd largest contributor to the Indian economy after Agriculture.
 2nd largest contributor to India’s GDP – from 5 to 10.6%
 2nd largest employer in the Country.
 Supports more than 350 Industries.
 Biggest contributor to the Indian Urbanization - Expected to increase from 26%
in 2006 to 34% in 2026.
 The Indian real estate market is expected to touch US$ 180 billion by 2020.
 Strong Economic Growth.
 Huge Housing requirement.
 Progressive Investment climate.
Introduction (1/2)

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Key Operational Challenges faced by Real Estate Sector:
 High funding cost
 Stringent regulatory and tax framework
 Unclear policies
 Slow pace of infrastructure projects
 High inflation and fiscal deficit
 Non-availability of urban land (costly)
 Rising cost of construction
 Delay in approvals
 Relatively low transparency
Introduction (2/2)

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 Key areas for Planning & Structuring:
Challenges
Approvals
• RERA
• Local
Authorities
Accounting &
Taxation
• Accounting
• Direct Taxes
• GST
• Costing
Audit
• Statutory and
Tax Audits
• ICDS
• Ind. AS
Labour Laws
• Minimum
Wages; PF
including EPF;
ESI, Bonus,
Gratuity, Cess
etc
• Other Acts.,
Rules and
Regulations

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REAL ESTATE BUSINESS
Construction &
Development of Land
(CADOL)
Own Land /
Purchase
Entering JDA
Purchase & Sale
Own land
/Purchase
Entering JDA
Renting / Leasing (for
short or long term)
Constructed
Property
Land
Introduction to real estate business

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Accounting & Taxation
ACCOUNTING & TAXATION
Builder / Developer Land owner

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 The revenue is recognised as per the AS-7 “Construction Contracts”.
Methods for Revenue Recognition
Methods of Revenue
Recognition
CCM
Costs are accumulated until the contracted
work is completed and are finally matched
with contract revenue to ascertain profit or
loss.
PCM
Revenue and costs are recognised by
reference to the extent of contracted
work completed.

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 General provision of computation of business income prescribed U/s 28
to 44DB of Income Tax Act shall be applicable.
 The following documents may be entered for sale of property:
 Agreement of Sale
 Sale Deed
 Construction / Development/ Supplementary Agreements
 Specified Agreements, if any
Documents required for sale of property (1/2)

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 Cash Receipts
Limit on Cash Receipts & Cash Payments (1/2)
Section Conditions
Cash Receipt
(Limit)
Remarks Penalty
269SS  Cash deposit or
 Cash loan or
 Specified sum (related to
land or building or both)
Rs.20,000/- per
transaction
Amount should
be received by
account
cheque/draft or
electronically
through bank
account
100% of such
receipt is levied
u/s 271D
269ST No person should receive in
cash in “Aggregate” from :
 Single Person or
 Single transaction or
 Transactions related to one
event or occasion
Rs.2,00,000/- 100% of such
receipt is levied
Applicable w.e.f
01.04.2017

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 Cash Payments
Limit on Cash Receipts & Cash Payments (2/2)
Section Conditions
Cash Payment
(Limit)
Remarks Penalty
32/43(1) No depreciation on Capital
Expenditure incurred in cash
Rs.10,000/- per day
Amount should
be received by
account
cheque/draft or
electronically
through bank
account
No claim of
Depreciation
Applicable w.e.f
01.04.2017
40A(3) No cash payment in relation
to expenditure
Rs.10,000/- per day Dis allowance of
expenditure
269T No Repayment of
 Loan or
 Deposit or
 Specified sum in cash
Rs.20,000/- per
transaction
100% of such
payment
u/s 271E

12
NORMAL PROVISIONS
 Person engaged in business
or profession are :
 required to maintain regular
books of account and
 get accounts audited
if their gross turnover or
income exceeds the prescribed
limit.
Meaning of Presumptive Taxation (1/3)
Relief to small
tax payers
PRESUMPTIVE TAXATION
 To get relief to from this tedious work of
maintenance of Books of accounts, a small
taxpayer.
 can opt for presumptive taxation under
section 44AD, 44AE or 44ADA
Upon satisfaction of the prescribed conditions.
 Deemed net profit will be as under:
1. Non Cash Sales (Receipts through
Online Transfer, Account Payee Cheque/
Draft, NEFT, RTGS) – Deemed Net Profit
shall be 6% of Total Turnover or Gross
Receipts.
2. Cash Sales – Deemed Profit shall be 8%
of Total Turnover or Gross Receipts.
 To encourage non-cash payments through
bank or digital channels
www.sbsandco.com

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Consequences if assessee opt 44AD:
 If an assessee opts for presumptive taxation under this section, then he is required to
follow the same scheme for next 5 years.
 If assessee failed to do so, then presumptive taxation scheme will NOT be available for
next 5 years.
 Any person opting for presumptive taxation scheme under section 44AD or 44ADA is
liable to pay whole amount of advance tax on or before 15th March of the previous year
 Failure to pay the advance tax attracts interest as per section 234B & 234C.
 Any amount paid by way of advance tax on or before 31st day of March shall also be
treated as advance tax paid during the financial year.
Presumptive Taxation - 44AD (3/3)

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Conversion of Capital Asset into Stock in Trade (U/s 45(2)) :
 Full value of consideration : Fair market value as on date of conversion is
treated as full value of consideration.
 Year of taxability : Capital asset is chargeable to tax in the year in which such
stock-in-trade is sold.
 Business Income : The difference between Sale price and Fair market value as
on the date of conversion is chargeable to tax under head “Profits and Gains
of Business or Profession“.
Other Points :
 If the converted asset is sold in various years, the section will apply in each year in which
it was sold.
 In the year in which property is actually sold, full value of consideration shall be stamp
duty value on date of transfer as per sec 43CA.
Capital Gains - Deemed Transfers (1/5)

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 X acquires land on 01.06.1981 for Rs.6,00, 000. He converts his land into stock in trade of his
real estate dealing business on 18.02.2017 where fair market value of land was Rs.70,00,000/-.
Stock in trade was sold by him on 18.03.2017 for Rs.90,00,000/-
 In this case he would be liable to Capital gain in financial year (2016-17) as follows:
 Business Income would arise in year of sale (2016-17):
Example: (2/5)
Full Value of Consideration 70,00,000
Less : Indexed cost of acquisition (6,00,000*1125/100) 67,50,000
Long Term Capital Gain 2,50,000
Sale proceeds of House Property 90,00,000
Less : Fair market value on date of transfer 70,00,000
Business Income 20,00,000

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Particulars
Transfer of assets by way of Capital
Contribution
Distribution of assets on dissolution of
Firm/AOP/BOI or otherwise
Section 45(3) 45(4)
Transferor Individual (member) Firm/AOP/BOI
Transferee Firm/AOP/BOI Individual (member)
Full Value of
Consideration
The value of capital asset as recorded
in the Books of firm/AOP/BOI
Fair market value as on date of transfer
Year of
Chargeability
In the year in which transfer took
place
In the year in which transfer took place

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Compulsory Acquisition under any law, C.G or R.B.I (u/s 45(5)):
 Full value of consideration : Compensation or consideration received.
 Year of taxability : Capital asset is chargeable to tax in the year in which such
compensation / consideration is first received.
 Other points :
 Any subsequent enhancement of compensation or consideration shall be chargeable in
the year in which such amount is received under head “Capital Gains”.
 Sec – 194LA : Any payment made to resident on account of Compulsory acquisition shall
be subjected to TDS @ 10%.However no deduction shall be made where payment does not
exceeds Rs.2,50,000/-.
 Any consideration received from Compulsory acquisition of Agricultural Land is exempt 10(37).

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 Meaning and some of the features of such agreements are as follows:
a. It is a Specified agreement between the parties.
b. The parties to this agreement do not form a Partnership firm or an AOP.
c. The land owner does not contribute his land to any entity as there is no separate
entity assessable to tax.
d. The parties agree to share the Built up area or Revenue of the project.
e. The arrangement entered between the parties is made known through the sale
agreement to the prospective purchasers.
f. Legal title, Control and domain over the property continues to remain with land
owner till the completion of the project.
g. The parties to the agreements are normally responsible for their respective actions
under the respective enactments as per the terms of Development Agreement.
h. The parties agree to file their respective Income Tax Returns separately in respect
of income received or accrued to them.
Joint Development Agreement (1/2)

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Monetary
Consideration
Non-Monetary
Consideration:
consists of a share in
the land or building
or both in the
project
Operations
No heavy initial
investment
Payment to
landowner can be
made as and when
collections are made
from the customer
or by sharing of the
built up area with
the landowner
Benefit to
Developer
Landowner with
low technical
insights on real
estate
development can
now reap the
benefits of higher
consideration on
sale of developed
estate than
outright sale of
land
Benefit to
Landowner
Joint Development Agreement (2/2)

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Objective of this amendment:
 EXISTING: "Under the existing provisions of section 45, capital gain is
chargeable to tax in the year in which transfer takes place except in
certain cases. The definition of 'transfer', inter alia, includes any arrangement or transaction
where any rights are handed over in execution of part performance of contract, even though the
legal title has not been transferred. In such a scenario, execution of JDA between
the owner of immovable property and the developer triggers the Capital
gains tax liability in the hands of the owner in the year in which the
possession of immovable property is handed over to the developer for
development of a project.
Section 45(5A) – amendment (1/10)

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Objective of this amendment:
 AMENDMENT: With a view to minimise the genuine hardship which the
owner of land may face in paying capital gains tax in the year of transfer,
it is proposed to insert a new sub-section (5A) in section 45 so as to
provide that in case of an assessee being an individual or HUF, who enters
into a specified agreement for development of a project, the Capital
Gains shall be chargeable to income-tax as income of the previous year in
which the Certificate of completion for the whole or part of the project
is issued by the competent authority.“
 In case of a JDA executed before 31-3-2017 but in respect of which the
possession is given after 31-3-2017, that is, the transfer takes place after
31-3-2017, section 45(5A) would apply to the transferor.
Section 45(5A)– amendment (2/10)

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 Applicability: The section 45(5A) applies if all the following conditions are
fulfilled:
Section 45(5A)– applicability (3/10)
S. No. Conditions
(a) The Assessee is an Individual or HUF
(b) Capital gains arise to the assessee from transfer of a capital asset
(c) The capital asset is a land or building or both. Applies on any type of land
whether residential or commercial or agricultural or non-agricultural
(d) The transfer is made under a specified agreement
(e) The consideration for the assessee includes or consists of a share in the
land or building or both in the project
(f) The assessee has not transferred his share in the project on or before the
date of issue of the certificate of completion ("CC") for the whole or part of
the project as issued by the competent authority.

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 Sec 194-IC. - Any person responsible for paying to a resident any sum by
way of monetary consideration under JDA shall deduct tax @10 %
(w.e.f 01-06-2017)
 Period of holding is reduced from 36 months to 24 months in case of
immovable property, being land or building or both to treat it as short
term capital asset;
 Base Year shifted from April 1st, 1981 to April 1st, 2001 for all assets
including immovable property. Base Year Shift helps the investor as now
prices are more realistically calculated accounting for inflation.
 Section 45(5A) does not apply to joint development agreements executed
by two developers who are holding the land and buildings as stock-in-
trade.
Section 45(5A)– other points (4/10)

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 Only the year of charge of capital gains is postponed, However there is no change in the
date of transfer/period of holding.
 Hence, whether the land or building is short term or long term would depend on principles
laid out in section 2(42A) and not on the basis of postponement of taxation u/s 45(5A).
 This section states that the taxability for land owner will arise only in the year of receipt
of completion (part or full) certificate for the real estate project irrespective of actual time
of transfer of land, execution of agreement etc. This will determine the period of holding of
the asset as well.
 Under JDA, Land owner receives few units of building as a consideration which might be
sold further by land owner. In that case cost of acquisition would be deemed consideration
as per section 45(5A).
 Likewise, the indexed cost of acquisition, which is linked with the year in which an asset is
"transferred" will remain the same under the general provisions as well as under section
45(5A).
Section 45(5A)– other points (5/9)

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 Under 45(5A): After fulfilling the conditions
Example :
• A, an individual enters into a JDA with a developer B on 21.05.2017. Under the agreement, A is to
receive Rs. 12 lakhs from B and 1,00,000 Sq.ft. of developed area in Vishakhapatnam.
• The COC of the project is issued in FY: 2018-19 & the stamp duty value of the developed area as
on the date of issue of completion certificate is Rs. 5.04 crores. In such a case,
• the full value of consideration received or accruing as a result of transfer would be
 Rs. 5.16 crores (Rs. 5.04 crores + Rs. 12 lakhs)
• Capital gains shall be chargeable to tax in assessment year 2019-20 corresponding to the previous
year 2018-19.
Section 45(5A)– Consideration (6/10)
Stamp
Duty Value
Cash CONSIDERATION

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Non-Applicability of Section 45(5A): If the assessee has transferred his
share on or before the date of issue of the completion certificate by
competent authority
 Capital gains shall be deemed to be the income of the previous year in which
such transfer takes place,
 Normal provisions will apply for the purpose of determination of full value of
consideration received or accruing as a result of the transfer.
 For more clarification refer table below

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What Should be the Consideration ???
• On Built-up Area (Total SFT to be received
• On Land given to Developer (Developer Share)
• On Land & Built-up area (As per Development Agreement)
• On Total value of Land

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 Dy. CIT v. Jai Trikanand Rao [2013] 37 taxmann.com 125 (Mum. - Trib.)
The assessees were co-owners of property purchased by their ancestors in 1947. They
entered a collaboration agreement with builders for developing land and getting flats built
on it. Under the agreement, assessees got 56% of total built-up area and transferred 44% of
land to builders. It was held that consideration for transfer of 44% land was cost of
construction of 56% built-up area, which was to be incurred by builder.
 ITO v. N. S. Nagaraj [2014] 52 taxmann.com 511 (Bang. – Trib
The Tribunal observed that full consideration was the cost of construction incurred by the
builder on the assessee's share of constructed area, because the assessee would receive
constructed area in lieu of the land share. Whatever is the expenditure incurred for
constructing that area was a consideration in kind to the assessee.
Section 45(5A)– case laws (9/10)

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 Prabhandam Prakash v. ITO [2008] 22 SOT 58 (Hyd. - Trib.)
The promoter was to give 43% of built-up area to assessee in new complex and 57% of this
area was to be owned by promoter. It was held that cost of construction of 43% of built up
area was to be total sale consideration for assessee for transferring land and existing
structure
 CIT v. Khivraj Motors [2015] 62 taxmann.com 305 (Kar.)
The assessee arrived at consideration by taking cost of construction at Rs. 800 per sq. ft.
which was agreed upon between parties. However, cost of construction at Rs. 800 per sq. ft.
was substituted by the AO by project cost. It was found that builder paid non-refundable
amounts to landlord and tenant to acquire vacant possession of property. Further,
advertisement cost had been incurred by him. It was held that these amounts could not be
taken as part of cost of construction.
Section 45(5A)– case laws (10/10)

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Special Provision for Full value of Consideration :
The very purpose of this section is that undisclosed income arising as
Capital Gain should be taxed in the hands of the assesse.
The section states that :
• The asset is the Capital Asset (land or building or both)
• Value is less than the value adopted by authority of a State Government
for the purposes of section 48 the value shall be “The value so adopted or
assessed by Stamp valuation Authority shall be the Full value of the
Consideration received or accruing as a result of such transfer”.
Section 50C - Deemed Sale Consideration (1/3)

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 The new proviso inserted by Finance Act 2016 w.e.f 01.04.2017 is a rationale
step by Income Tax Simplification Committee (Easwar Committee) which
removed the hardship of assesse.
“Provided that where the date of the agreement fixing the amount of consideration and
the date of registration for the transfer of the capital asset are not the same, the value
adopted or assessed or assessable by the stamp valuation authority on the date of
agreement may be taken for the purposes of computing full value of consideration for
such transfer”.
 This amendment says stamp duty valuation of property on the date of execution
of the agreement to sell should be adopted instead of the valuation on the date
of execution of the sale deed if the agreement date and registration dates are
different.

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FMV by Valuation Officer is higher than the Stamp duty value :
a. If the value of Land/building assessed by the Assessing officer (AO) is higher
than the market value and the assessee object such value. The AO may refer it
to Valuation Officer for valuation.
b. The AO should take value of land/building as Stamp duty value assessed by
himself or FMV assessed by Valuation Officer ,whichever is lower.
Stamp duty value assessed is more than fair market value:
a. If the assesse claimed before Assessing Officer that the value adopted or
assessed by the stamp valuation authority under sub section (1) exceeds
the fair market value of the property as on the date of transfer, the AO that
he may refer the valuation of capital asset to Valuation officer.

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Fair Market Value Deemed to be Full Value of Consideration:
This section is applicable when there is “Transfer” of capital asset. Such
transfer should be an absolute transfer under section 2(47) of the Income
Tax Act, 1961.
 Applies to cases where consideration is present (received or accrued).
 But cannot be Determined
Say for land and building consideration is unascertainable or cannot be
determined.
 In such cases, Fair Market value of such land and building as on the date
of transfer shall be deemed to be the full value of consideration.
Section 50D

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PARTICULARS SEC 54 SEC 54F SEC 54EC
Exemption to be claimed Individual/ HUF Individual/ HUF Any Person
Capital Asset Long Term Long Term Long Term
Eligible Specific Asset Residential HP Any LTA (other than
Residential HP)
Any LTA
Type of asset should be
acquire to get the benefit
of exemption
Purchase within 1 year before transfer or 2 years after
transfer or Construction within 3 years after the date
of transfer
Within 6 Months from the
date of Transfer
Amount Exempted Investment in new asset
or capital gain whichever
is lower
Capital Gain*Amount
Invested/ Net Sale
Consideration
Investment in new asset
or capital gain whichever
is lower
Exemptions (1/3)

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Conditions or Exemption
revoke in a subsequent
year
If the new asset is transferred
within 3 years of its
acquisition.
a) Owns more than one
residential house property as
on the date of transfer
b) Within one year before the
date of transfer of original
asset, there is a purchase of
other residential house
property other than new
house.
c) Within two / three years of
transfer of original asset,
assesse had purchased /
constructed another
residential property other
than new asset.
If the new asset is transferred
or it is converted in to money
or a loan is taken on security
of the new asset within 3
years of its acquisition.
Exemptions (2/3)

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Exemption revoked-
taxable as LTCG/ STCG
STCG LTCG LTCG
Scheme of Capital Gains
Account deposit is
applicable
Yes Yes NO
Investment In India only
Number of Properties One One Rs. 50L in NHAI or REC or
any Notified Bonds by CG
Deemed sale
consideration
Section 50C may apply Section 50C may apply
only in case of “Land”
Section 50C may apply
Exemptions (3/3)

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 Where immovable property say land and building is received in form of
Gift, the taxability is as follows :
Afmpvwiw-3wmmm ,l
Notional Income
Particulars 56(2)(vii) 56(2)(x)
Provision in force Till 31.03.2017 On or after 01.04.2017
Recipient Individuals and HUF All assesse
TAXABILITY : If the asset is received Taxable Value :
Without consideration i.e.,Stamp duty value > Rs. 50,000 • Stamp duty value
With Consideration is less than stamp duty value by an
amount exceeding Rs.50,000
• Stamp duty value of property as exceeds
consideration as per the Act
Gifts received from following are not taxable:
 Relative  Under will / by Inheritance
 On occasion of marriage of individual  Local Authority
 In contemplation of death of payer or donor  Trust or Institution registered U/s12AA

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Section 285BA read with rule114E
 To keep a watch on high value, the Income-tax Law has framed the
concept of “Statement of Financial Transaction or Reportable Account”
 Under this statement the following is to be reported :
 Any Purchase/Sale of immovable property for an amount of Rs.30,00,000 or
more or
 Valued by the stamp valuation authority at Rs.30,00,000 or more
 Other Points :
 Transaction is to be reported in Form 61A (under SFT- 012)
 Reporting Person : Inspector General or Sub Registrar (appointed under
Registration Act)
Reporting Requirements

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Particulars
194IB - Payment of rent by certain
individuals or HUF
194J - Fees for professional or technical
services
Payer Individual / HUF Any Person
Payee Resident Payee Resident (not an individual/HUF)
Nature of Payment Rent  Fees for Technical / Professional Services
 Remuneration or Commission or Royalty
 Sum referred to in clause (va) of sec 28
Rate of Deduction @ 5 per cent @ 10 per cent
Threshold limit Rs.50,000/- per month Rs. 30,000/-
Other Point to be
considered
Rent - Payment, made under any
lease, sub-lease, tenancy or any
other agreement or arrangement
Assesses who are engaged in the business of
operation of call centre tax is to be deducted
@ 2 per cent
Due date to deposit tax Within 30 days Government deductee: Same day of deduction
Other deductee : Within 7 days
Form 26QC
Certificate of deduction Form 16-C (to be issued by
deductor)
Tax Deducted at Source (1/7)

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Particulars 194C - Payment to Contractors
Payer Specified Person
Payee Resident Contractor
Rate of Deduction 1 % - In case of Individual or HUF
2 %- In case of any other person
Threshold limit Single payment – Rs.30,000/-
Aggregate of payments – Rs.1,00,000/-
TDS in case of Transport
Contractor
Shall not Deducted provided :
 Contractor Furnishes his PAN &
 Does not own more than 10 goods carriage at any time during the p.y &
provides declaration to that effect.
Due date to deposit tax Government deductee: Same day of deduction
Other deductee : Within 7 days
Certificate of deduction Form 16-A on quarterly basis (to be issued by deductor)
Any payment by Individual or HUF to resident contractor for per personal purpose is not subjected to TDS

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Particulars 194H - Commission or brokerage
Nature of payment Any payment of commission or brokerage to a resident person (other than an
individual or a HUF)
Amount of Deduction @ 5 per cent
Exception Where amount or aggregate of amount does not exceed Rs.15,000/- no TDS is
deducted.
Other Points :
 However, an individual or a HUF, whose Total sales/Gross receipts/Turnover from the business or
profession carried on by him exceeds the monetary limits u/s 44AB during the financial year immediately
preceding the financial year in which such commission or brokerage is credited or paid, they shall be liable
to deduct income-tax under this section.
 No deduction shall be made on any commission or brokerage payable by BSNL or MTNL to their public call
office franchisee

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Particulars 194IA - Payment on transfer of certain immovable property
Transferor Resident Transferor
Transferee Any person
Person liable to deduct Tranferee
Nature of Payment Consideration for transfer of immovable property(Other than agricultural land)
Rate of Deduction @ 1 per cent
Threshold limit Rs.50,00,000/-
Consequence of Non
furnishing of PAN
Tax is to deducted at higher of the following rates:
 the rate prescribed in the Act;
 at the rate in force, i.e., as mentioned in the Finance Act; or
 at the rate of 20 per cent
Due date to deposit tax Within 7 days
Form 26QB
Certificate of deduction Form 16-B (to be issued by deductor)
Provisions relating to Tax Deduction and Collection Account Number, shall not apply.

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Particulars 195- Other Sums (TDS on Non-Residents payments
Payer Resident
Payee Non-Resident
Nature of Payment Any sum paid (including for purchase of immovable property)
Rate of Deduction At rates in force
Threshold limit No threshold limit
Due date to deposit tax Within 7 days
Form 27Q (quarterly) returns
Certificate of deduction Form 16-A
Other Points :
 Payer should obtain TAN. The same can be obtained by applying in Form 49B electronically.
 He should have his own PAN number and PAN number of the NRI payee

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 Section 197 – Certificate for deduction at lower rate
 If tax is deducted at source under section 192,193,194,194A, 194C,
194D,194G, 194H, 194I, 194J, 194LA & 195
 Assessing Officer shall give him certificate so as to non-deduction of tax on
any of the income received by the recipient.
1.
• Assesse feels that no or lower rate of TDS
should be there .
2. • Assessing Officer is satisfied with the same.

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Particulars
Disallowances – Non Residents
40a(i)
Disallowances –
Residents 40a(ia)
Disallowances – Non
Residents 40a(ib)
Income Interest, Royalty, Fees for
technical services or Other sum
Any sum paid or
payable
Any consideration paid or
payable for specified
service
Payable • Outside India or
• In India to non-resident
- -
Tax Deductible TDS TDS Equalisation levy
Violation • Such Tax has not been deducted
• Having deducted, has not been paid on or before due date of furnishing the return
Amount of
disallowance under
head “PGBP”
100 % of such sum 30 % of such sum 100 % of such sum
Provided if such tax is deducted or paid in subsequent year the same shall be allowed as deduction in
subsequent year.
Disallowances on payments made

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Consequences for non payment of TDS
Consequences for non payment of TDS
S. No. U/s Description
1 40(a) Disallowance of expenses in computing taxable income of payer.
Allowance in the year of deduction
2 201(1) Recovery of tax not deducted / deposited or short deducted / deposited
3 201(1A) Interest @ 1% / 1.5% per month or for part of the month
4 221 Penalty – not exceeding the amount of tax not paid
5 271C Penalty – not exceeding the amount of tax not withheld
6 276B Prosecution

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Un-accounted income:
IMPLICATIONS OF UNACCOUNTED INCOME
TAX under 115 BBE of IT Act
(A)
(A.1)
Self-Declaration
(A.1.1) Advance Tax
Paid Total Tax
=77.25% (60% Tax
+25% sc+3% cess)
(A.1.2) Advance
Tax Not Paid Total
Tax = 83.25% (+
Penalty
U/s.271AAC @
10% of Tax)
(A.2)
Detected By AO
SEARCH u/s 132
(B)
(B.1) Income
Admitted
Total Tax =
107.25%
Incl. Cess
&penalty)
(B.2) Income
Not
Admitted
Total Tax =
137.25%
(incl. Cess &
penalty)

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Disclosures in REAL ESTATE SECTOR
Tax Audit
Income Computation Disclosure
Standards

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 Amendments in Form 3CD so as to present “True and correct "view :
Form 3CD – Part A
Additions/Amendments in
clauses
Nature of Item Response
Clause 4
(Newly added)
“Whether the assesse is liable to pay
Indirect tax like excise duty, service tax,
sales tax, customs duty, etc. If yes, please
furnish the Registration Number or any
other identification number allotted for the
same.”
• The tax auditor should get
management representation
from the assesse a list of taxes
applicable and obtain the copy
of registration certificates
available with assesse.
• If the assesse has multiple
registrations, then get the all
the certificates for proper
disclosure
• If the assesse is liable but not
registered, then this will come
in qualification

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Form 3CD – Part B
Additions/Amendments
in clauses
Clause 11 Clause 11(a)
Whether books of account are
prescribed under Section 44AA, if
yes, list of books so prescribed
Clause 11 (b)
List of books of account maintained
and the address at which the books
of accounts are kept.(even if
maintained electronically)
Clause 11 (c)
List of books of account and nature
of relevant documents examined
• In case the books of accounts are kept
at more than one location then auditor
is required to mention the details of
address of each location along with the
BOA maintained.
• Minutes and Statutory registers and
records should be maintained since
inception as these are principle
documents.
• The auditor should make a checklist of
the details asked and hand it over to
assessee for getting the data.

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Addition/
Amendment
in Clauses
Nature of item Response
Clause 17 Where any land or building or both is
transferred during the previous year for a
consideration less than the value adopted or
assessed or assessable by any authority of a
State Government referred to in Section
43CA or 50C, please furnish
• Points to remember:
• The auditor has to report under this clause
about details the transactions done in
previous year which attracts section
50C/43CA as discussed earlier.
• Accounts/details of Fixed Assets,
investments and inventory.
• Refer to the accounts like rates and taxes,
legal fees etc. (to find out if there is any
expense booked in relation to transfer of
such asset).
Form 3CD – Part B

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Addition/
Amendment in
Clauses
Nature of item Response
Clause 21(d) (d) Disallowance/deemed income under Section 40A(3):
A. On the basis of the examination of books of account and other
relevant documents/evidence, whether the expenditure
covered under Section 40A(3) read with rule 6DD were made
by account payee cheque drawn on a bank or account payee
bank draft. If not, please furnish the details.
A. On the basis of the examination of books of account and other
relevant documents/evidence, whether the payment referred
to in Section 40A(3A) read with rule 6DD were made by
account payee cheque drawn on a bank or account payee
bank draft If not, please furnish the details of amount deemed
to be the profits and gains of business or profession u/s
40A(3A):
This new insertion has brought additional
reporting under form 3CD regarding the cash
expense.
The auditor has to report two things
specifically;
That the cash payment during in the previous
year did not exceed Rs. 10000 per day.
That the expense allowed previously in
preceding years through accrual
concept, for which cash payment is
made beyond Rs. 10,000 should be
treated as deemed income and reported
here.
The auditor need not obtain any certificate
from assesee that section 40A(3) is duly
complied , if complied.
Form 3CD – Part B

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Form 3CD – Part B
Additions/Amen
dments in
clauses
Clause 28
(Newly added
clause)
Whether during the previous year the assessee
has received any property, being share of a
company not being a company in which the
public are substantially interested, without
consideration or for inadequate consideration as
referred to in Section 56(2)(viia), if yes, please
furnish the details of the same.
This is applicable in case of Firms or Private
Limited Company.
The auditor has to report about any property
received as a share from above assesse without
consideration or inadequate consideration.
Section 56(2)(viia)
If the firm or Pvt Ltd Company (which stock not
traded publicly on regular basis) receives shares
without/inadequate consideration then
 If no consideration : FMV > 50000 , then FMV
is taxable
 If inadequate consideration : Such
consideration – FMV exceeds 50000 then such
difference is taxable.

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Form 3CD – Part B
Additions/Ame
ndments in
clauses
Clause 31 Reporting requirement:
a) Particulars of each loan/ deposit which exceeds the limit u/s
269SS
b) Particulars of each “specified sum” which exceeds the limit
u/s 269SS during previous year.
c) Particulars of each repayment of loan/deposit ‘made’,
exceeding the limit u/s 269T during previous year.
d) Particulars of each repayment of loan/deposit ‘received’,
exceeding the limit u/s 269T otherwise than by a cheque or
bank draft or use of electronic clearing system through a
bank account during previous year.
e) Particulars of each repayment of loan/deposit ‘received’,
exceeding the limit u/s 269T received by cheque or bank
draft which is not an account payee cheque or bank draft
during the previous year.
The changes in this clause includes the reporting
about the amendments effected in section 269SS
and 269ST vide
Notification vide No.58/2017 dated 3rd July, 2017 *
It requires reporting by the recipient of such loan
and deposits or specified advance which has been
repaid
It has increased the scope of reporting for section
269SS and 269T
(Given in brief about amendment , below the
table)

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Form 3CD – Part B
Additions/Am
endments in
clauses
Clause 40 The details required to be furnished for principal items of
goods traded or manufactured or services rendered for
Previous year and Preceding previous years.
1. Total turnover of the assessee
2. Gross profit/turnover
3. Net profit/turnover
4. Stock-in-trade/turnover
5. Material consumed/ finished goods produced
Now, preceding years’ data should also be
provided in terms of ratios.
In case, the earlier year’s form 3CD was prepared
and signed by someone else then a suitable note
should be given, if relied on that.
Clause 41 Please furnish the details of demand raised or refund issued
during the previous year under any tax laws other than Income
Tax Act, 1961 and Wealth tax Act, 1957 along with details of
relevant proceedings
• The tax auditor shall obtain a copy of all the
demand/ refund orders issued by Govt.
authorities during the previous year under
any other law apart from IT Act, Wealth Tax
Act.
• The cess /duty would not be covered.
• Disclose the refund/demand orders received
during PY , pertaining to PPY

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Penalty for failure to get accounts Audited: (U/s 271B)
 If the assesse fails to get his accounts audited or furnish a report of such
audit u/s 44AB, Penalty of
• ½ of total Sales, turnover or gross receipts Or
• Sum of Rs. 1,50,000 w.e.is lower (w.e.f.1-4-2011)
No penalty shall be imposed, if assesse proves that there was reasonable cause for such failure.
Penalty of Rs.10,000/- is levied for furnishing incorrect information
in reports or certificates by an accountant. (U/s 271J)
Tax Audit – 44AB

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 Amended U/s 145(2), 10 ICDS notified vide notification 87/2016 dated 29th September, 2016 and Notified
ICDS applicable from AY 2017-18.
Income Computation Disclosure Standards
ICDS Name of the ICDS
I Accounting Policies
II Valuation of Inventories
III Construction Contracts
IV Revenue Recognition
V Tangible Fixed Assets
VI Changes in Foreign Exchange Rates
VII Governments Grants
VIII Securities
IX Borrowing Costs
X Provisions, Contingent Liabilities and Contingent Assets

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Applicability:
 All assesses (other than an individual and HUF not required to get accounts audited U/s.
44AB) following mercantile system of accounting.
 All partnership Firms and LLP following mercantile system;
• irrespective of whether audit required u/s 44AB or not
• having “Income from business or Profession” and “Income from Other Sources
Non- Applicability:
 To individual/HUF not carrying on business or profession.
 Person with only income from other sources following Cash system of accounting.
 Not applicable where books of accounts not maintained.
 Persons following cash system of accounting.
 Individual/HUF falling under presumptive tax not subject to audit u/s 44AB –CBDT Circular No.
10 of 2017 dated 23rd March 2017.
 Other heads of income - computation of capital gain, House Property, etc.,
 For Sections 68, 69, 69A and 69B, books of account are relevant.

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Other Points
 Tax auditor is required to certify that the computation of total income is made in
accordance with the provisions of ICDS –( accordingly the Form 3CD containing the
details)
 The net effect on the income due to application of ICDS is to be disclosed in the
Return of Income
 Best judgment assessment is made when A.O is not satisfied about:
U/s 144
is
attracted
1.Correctness or completeness of the accounts.
2.Method of accounting is not regularly followed.
3.Income not computed as per ICDS.

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 Disclosure Requirement w.r.t Form 3CD
Under clause 13 ”New sub clause is added as under”
(d) Whether any adjustment is required to be made to the profits or loss for
complying with the provisions of income computation and disclosure standards.
(e) If answer to (d) above is in the affirmative, give details of such adjustments:
ICDS Name of ICDS Increase in Profit (Rs) Decrease in Profit (Rs) Net Effect (Rs)

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ICDS II – Valuation of Inventories: Disclosure Requirement:
 the accounting policies adopted in measuring inventories
 Where standard costing has been used as a technique for measurement the
cost, details of such inventories and a confirmation of the fact that standard
cost approximate actual cost; and
 the total carrying amount of inventories and its classification appropriate to a
person
 Clause 13(f)(ii) of the Tax Audit Report.
“When the inventory valued without including duties & taxes, the same should be
included in valuation of inventory as per ICDS “

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ICDS III - Disclosure Requirement:
 The methods used to determine the stage of completion of contracts in
progress.
 Clause 13(f)(iii) & (iv) of the Tax Audit Report.
S.No Description of Total Amount of For the year ended
1. Contract revenue recognized
2. Contract cost
3. Profit recognized
4. Advances received
5. Retention money

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ICDS IV - Disclosure Requirement:
 for service transactions in progress at the end of previous year:
 recognized profits less recognized losses up to end of previous year
 the amount of advances received
 the amount of retentions
 Clause 13(f)(iv) of the Tax Audit Report.

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Thank you!!!
CA Suresh Babu S
Managing Partner
M/s SBS and Company LLP
suresh@sbsandco.com
9440883366
www.sbsandco.com

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