Indian Real Estate: Demystifying the New Tax and Regulatory Environment

March 2019 | Real Estate
Report highlight some of the key issues impacting the real estate sector from a Goods and Services Tax (GST) perspective along with suggestions which may be considered by the Government of India to overcome these issues. Including real estate sector as whole within GST coupled with rational GST rates, seamless utilization of indirect tax credits and lowering of stamp duty would be welcome by the industry.

Report covers specific issues and suggestions under 3 major categories:
  1. Key direct tax issues for real estate sector:
    • Dichotomy of IND AS 115 for books vis-à-vis Percentage of Completion Method (PoCM) for tax
    • Removal of notional income taxation under Section 23(5) of the Act
    • Restriction of set-off of loss under house property to INR 2 lakhs under 71(3A)
    • REIT taxation regime
  2. Key indirect tax issues for real estate sector:
    • Taxability of development rights under GST
    • Absence of proper mechanism to determine the amount of reversal of Input Tax Credit (ITC) on input/ input services used for flats/ units sold post occupancy certificate
    • Input tax credit for construction of property which is used for lease of the property is not eligible for set off
    • Deduction of one-third of total consideration as land value for the purpose of valuation of construction of immovable property
    • Denial of refund of inverted duty structure
  3. Key accounting issues impacting real estate sector
    • Revenue recognition
    • Lease accounting: Impact of Ind AS 116 for lessees / tenants
    • Consolidation–reassessment of control over land owning companies, joint venture accounting
    • Joint development agreement- barter transactions
    • Financial instruments, interest free loans, refundable security deposits, etc
    • RERA’s impact on accounting and disclosures
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