Real Estate Business DT Practical Insights SBS PPT ICAI vizag

REAL ESTATE BUSINESS
PRACTICAL INSIGHTS
CA Suresh Babu S
Managing Partner
M/s SBS and Company LLP
suresh@sbsandco.com
+91 9440883366
by
ICAI – Vizag
26th August, 2017

suresh@sbsandco.com www.sbsandco.com +91 94408833662
 Peek into Real Estate Sector
 Revenue Recognition
 Accounting Aspects
 Impact of Cash Receipts and Payments
 Presumptive Taxation
 Capital Gains – Deemed Transfer
 Peek into Joint Development Agreement
 Amendment to Section 45
 Deemed Sale Consideration, Section 50C & Section 50D
 Exemptions
 Notional Income
 Reporting Requirements
 TDS Provisions
 Un-accounted Income
 Tax Audit – recent important changes
 ICDS – Relevant to Real-estate business
Navigation

Outlook
Introduction Topics Impact of Recent Updates
JDAs and Tax Issues Deemed Sale Consideration
Un-Accounted Income & Misc.Exemptions & TDS Provisions

 Peek into Real Estate Sector
 Revenue Recognition
 Accounting Aspects
Outlook - 1
Introduction Topics

Peek into Real Estate Sector
Most Lucrative Business in
India
2nd Largest Contributor to Indian
Economy after Agriculture
2nd Largest Contributor to
India’s GDP – from 5% to 10.6%
2nd Largest Employer in the
Country
Expected to touch USD 180 Billion by
2020
Supports More than 350 Industries
Biggest Contributor to the Indian
Urbanization
Strong Economic Growth,
Progressive Investment Climate

 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
Key Operational Challenges

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

Types
CADOL*
Own
Land/Purchase
Entering JDA
Purchase and
Sale
Own Land /
Purchase
Entering JDA
Renting/Leasing
Constructed
Property
Land
Real Estate Business
* CADOL – Construction and Development of Land

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

 Builder or Developer
 Land Owner
 General documents may be entered for sale of property:
 Agreement of Sale
 Sale Deed
 Construction / Development/ Supplementary Agreements
 Specified Agreements, if any
Accounting & Taxation

 Cash Receipts and Payments
 Presumptive Taxation
 Capital Gain – Deemed Transfer
Outlook - 2
Impact of Recent Updates

Particulars 269SS 269T 269ST
Scope of the
section
Receipt of loans,
deposits and
specified sum
Payments of loans
or deposits or
specified sum
No person should receive in cash in
relation to:
• in aggregate from a person in a day;
• in respect of a single transaction ; or
• in respect of transactions relating to
one event or occasion from a person
Applicability of this
section
Any Person taking or
accepting
Any person paying Any person receiving any amount
Monetary Limit INR 20,000 INR 20,000 INR 2,00,000
Cash Receipts and Payments

Particulars 269SS 269T 269ST
Exception  Government;
 Any banking company, post office savings bank or co-operative bank;
 Any corporation established by a Central, State or Provincial Act;
 Any Government Company 11 as defined in
section 617 of the Companies Act, 1956 (1 of
1956);
Such other institution, association or body or class
of institutions, associations or bodies which the
Central Government may, for reasons to be recorded
in writing, notify in this behalf in the Official Gazette
• transactions of
the nature referred to in section 269SS;
• such other
persons or class of persons or receipts,
which the Central Government may, by
Notification in the Official Gazette, specify.
Penalty U/s 100% on such receipt U/s 271D 100% on such
payment U/s 271E
100% on such receipt U/s 271DA wef; 01-
04-2017
Remarks Amount should be paid/ received by account cheque/draft or electronically through bank
account
Cash Receipts and Payments

In aggregate from a
person in a day
• Mr. A transfers’ immovable property worth Rs.5,00,000 to
Mr. B and generates 5 different bills of Rs.1,00,000 each
and accepts cash in a single day at different times;
a single transaction
• Mr. A transfers’ immovable property worth Rs.5,00,000 to
Mr. B and generates one single bill for Rs.5,00,000. He
then receives cash Rs.1,75,000 on Day 1, Rs.1,75,000 on
Day 2 and Rs.1,50,000 on Day 3 then;
One event or
occasion
• Mr. A books a wedding party at a hotel and the hotel
makes a bill of Rs.1,50,000 for Food and Rs.1,00,000 for
Hall Charges and accepts cash Rs. 2,50,000 from Mr. A
then;
• Even if they are 2 different types of expenses but for the
same wedding.
Examples of 269ST - Violation

269ST may become apply
Sale proceeds of Goods
or Services; movable
or immovable
properties
Advance against sale of
goods/provision of service
Hospitals, Educational Institutions
etc.,
Advance taken or
reimbursement of
expendituref
Withdrawal of capital/ Profit in
Firm
Introduction of capital by partner in
Firm; issue of share capital
Recovery of Loan and interest
Gift in Cash and gift from a relative also covered.
Donations received by Trust
The parties Transactions of loan or deposit
between agriculturists may be exempt U/s 269SS
but other transactions between agriculturists are
not exempt U/s 269ST.

Sec 32/43(1):
Depreciation / Actual
Cost
No depreciation on
Capital Expenditure
incurred in cash of more
than Rs. 10,000/-
Payment should be made
through Banking
Channels only either by
account cheque/draft or
electronically through
bank account
No claim of Depreciation
Applicable
Wef. 01.04.2017
Sec 40A (3)
Reportable in clause 21
(d) of Form 3CD
No cash payment in
relation to expenditure
of more than Rs.
10,000/-
Dis allowance of
expenditure
Applicable wef. 01.04.2017
Cash Payments

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. (To encourage non-cash payments
through bank or digital channels)
2. Cash Sales – Deemed Profit shall be 8% of Total Turnover or Gross
Receipts.
Presumptive Taxation

Eligible Assessee • Individual, HUF or Partnership Firm
Eligible Business
• Any business except the business of plying, hiring or
leasing goods carriages referred to in section 44AE and
• whose total turnover or gross receipts in the previous
year does not exceed an amount of two crore rupees.
• Professionals referred in 44AA(1) – 44ADA, total gross
receipts should not exceed Rs.50L - tax @ 50%.
Non-applicability
• LLP & Company
• A person earning income in the nature of commission
or brokerage, or
• A person carrying on any agency business.
Presumptive Taxation

Consequences if assessee opted Presumption Taxation:
 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.
 U/ s 44AD or 44ADA is liable to pay whole amount of advance tax on or before
15th March of the previous year, any amount paid before 31st March shall also
be tread as advance tax paid during the FY.
 Failure to pay the advance tax attracts interest as per section 234B & 234C
 Expenditure in nature of salary/ remuneration, interest paid to partners shall
no longer be allowed.
Consequences of Section 44AD

Deemed Transfer
Land held as
Capital Asset
Section 2(47)(v) r.w.s
53A of Transfer of
Property Act
Land held as Stock-
in-trade
Whether Section 2(47)
r.w.s 53A of Transfer of
Property Act applies?
Taxable as Capital
Gain
Taxable as Business
Income
Definition of Capital
Asset (u/s 2(14)
specifically excludes
stock-in-trade

Deemed Transfer
Conversion of
Capital Asset into
Stock-in-trade -
Sec 45(2)
F.M.V as on the date of
the Conversion
Taxable as Capital Gain
in the year of Sale
Sale Price (-) F.M.V
as on the date of
the Conversion
Reason for
Conversion
Taxable as Business
Income
• To overcome the
provisions of
Section 50C
• To claim expenses
• To claim the set-off
of past unabsorbed
business loss
• Genuineness to be
provided for tax purposes.
• Section 50C applies to
eventual sale?
Benefits

 X acquires land on 01.06.1981 (FY: 1981-82) for Rs.6,00, 000. He converts his land into stock in
trade of his real estate dealing business on 18.02.2016 (FY: 2015-16) where FMV of land was
Rs.70,00,000/-. Stock in trade was sold by him on 18.03.2017 (FY: 16-17) for Rs.90,00,000/-
 In this case he would be liable to Capital gain in FY: 2016-17 as follows:
 Business Income would arise in year of sale - FY: 2016-17:
Deemed Transfer – Example
Full Value of Consideration 70,00,000
Less : Indexed cost of acquisition (6,00,000*1081/100) 64,86,000
Long Term Capital Gain 5,14,000
Sale proceeds of House Property 90,00,000
Less : Fair market value on date of transfer 70,00,000
Business Income 20,00,000

Deemed Transfer
Conversion of Stock-
in-trade into Capital
Asset
Whether taxable as on
the date of conversion?
From the date of
Acquisition
Period of holding for
computing Capital Gain
Reason for Conversion
From the date of
conversion into capital
asset?
• To make use of
brought capital loss.
• To avail the
concessional rate of
tax applicable to
long term capital
asset.
• Genuineness to be
provided for tax purposes
Benefits

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
Deemed Transfer
Applicability of 56(2)(vii) ?????? & 50C

Compulsory Acquisition under any Law/CG/RBI - Sec 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).
Compulsory Acquisition

 Peek into Joint Development
Agreements
 Amendment to Section 45
 Case Laws
Outlook - 3
JDAs and Tax Issues

Monitory
Consideration
Non-Monitory
Consideration
Peek into JDA
• No Heavy 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
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.
To Land Owner
To Developer

Peek into JDA
It is a specified
agreement between
the parties
The parties to this agreement do
not form a partnership firm or an
Association of Person
The land owner does not
contribute his land to any entity as
there is no separate entity
assessable to tax √
The parties agree to
share the Built up
area or Revenue of
the project
The arrangement entered between
the parties is made known through
the sale agreement to the
prospective purchasers
Legal title, Control and domain
over the property continues to
remain with land owner till the
completion of the project √
The parties to the agreements are normally
responsible for their respective actions under the
respective enactments as per the terms of
Development Agreement √
The parties agree to file their respective Income
Tax Returns separately in respect of income
received or accrued to them √

Existing
• CG is chargeable to tax in the year in which transfer takes place.
• execution of JDA between the owner of immovable property and the
developer triggers the CG Liability.
Amendment
• Applicable only to Individual & HUF.
• to minimise the genuine hardship which the owner of land for
payment of taxes.
• Taxable in the year of completion of the project subject to
conditions.
• JDA entered before 31-03-17, but possession handed over on after
01-04-17 – 45(5A) applies.
Capital Gain u/s 45(5A)

The section 45(5A) applies if all the following conditions are fulfilled:
Sec 45(5A) – Applicability
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.

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
Sec 45(5A) – Other Points

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 √
capital gains is postponed,
However there is no change
in the date of
transfer/period of holding
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) √
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)
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). √
Sec 45(5A) – Other Points

After fulfilling the conditions
Sec 45(5A) – Consideration
Stamp
Duty
Value
Cash
Consideration
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 Kadapa.
• 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.

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:

 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

 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

 Section 50C
 Section 50D
Outlook - 4
Impact of Recent UpdatesDeemed Sale Consideration

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”.
Deemed Sale Consideration – Sec 50C

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

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

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, FMV of such land and building as on the date of transfer
shall be deemed to be the full value of consideration.
Deemed Sale Consideration – Sec 50D

 Exemptions
 Notional Income
 TDS Provisions
Outlook - 4
Impact of Recent UpdatesExemptions & TDS Provisions

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

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

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 per Assessee 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

Notional Income
Where immovable property say land and building is received in form of Gift, the taxability is as
follows :
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

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

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/-
Tax Deducted at Source (1/7)

Particulars
194IB - Payment of rent by certain
individuals or HUF
194J - Fees for professional or technical
services
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)

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

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

Particulars 194IA - Payment on transfer of certain immovable property
Transferor Resident Transferor
Transferee Any person
Person liable to deduct Transferee
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.

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

 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.

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

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

IMPLICATIONS OF UNACCOUNTED INCOME
TAX U/s 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)
Un-accounted Income

Tax Audit
Income Computation
Disclosure Standards
Disclosure in Real Estate Sector

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 taxes 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
Letters 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.

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.

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

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 the previous
year exceeding Rs. 10,000 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

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 > 50,000 , then FMV
is taxable
• If inadequate consideration : Such
consideration – FMV exceeds 50,000 then
such difference is taxable.

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

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

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

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

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.

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.

 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)

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 “

ICDS III – Construction Contracts - 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

ICDS IV – Revenue Recognition - 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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Construction Services (Notification No 11/2017-Central Tax-Rate)
 GST shall not be applicable where the entire consideration has been received
after issuance of completion certificate, where required, by the competent
authority or after its first occupation, whichever is earlier
 In all other cases, Construction of a complex, building, civil structure or a part
thereof, including a complex or building intended for sale to a buyer, wholly or
partly is taxable at 18% (CGST 9% & SGST 9%)
 The value of such supply shall be equivalent to the total amount charged for
such supply less the value of land or undivided share of land, as the case may
be, and the value of land or undivided share of land, as the case may be, in
such supply shall be deemed to be one third of the total amount charged for
such supply.
GST Taxation

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Reverse Charge Mechanism
 In case of supply of taxable goods or services or both made by unregistered
person to a registered person, tax on such supply shall be payable by such
registered person (recipient) on reverse charge basis.
 However, the registered recipient shall not be liable to pay tax if the aggregate
value of such supplies of goods or service or both from any or all the
unregistered suppliers does not exceeds five thousand rupees in a day.
(Notification No 8/2017-Central Tax-Rate).
 The tax payable under reverse charge mechanism shall be paid in cash only and
such paid tax can be eligible to claim input tax credit.
GST Taxation

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CA Suresh Babu S
Managing Partner
M/s SBS and Company LLP
suresh@sbsandco.com
9440883366
Visakhapatnam Branch
of SIRC of ICAI
on
26-08-2017
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