Friday, January 25, 2013

“NEW PENSION SCHEME & INCOME TAX IMPLICATIONS”


TAX TALK-28.01.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“NEW PENSION SCHEME & INCOME TAX IMPLICATIONS”

Query 1]
I am a Government employee working with Indian Railways. I have taken a house building loan from ICICI bank on 2007 which I later transferred to a co-operative bank named Dr. Babasaheb Ambedkar Bank in 2011. Initially, when my loan was in ICICI bank, I was given exemption on income tax. But, after transferring the loan to co-operative bank my office account's dept denied giving any exemption in income tax on the basis of my home loan giving the reason that it is from a co-operative bank. Please guide, whether home loan from Co-operative bank doesn’t qualify for income tax exemption? Or, are there different tax exemption rules for nationalized banks and co-operative banks?  [K.K.Roy-dev_roy000@yahoo.com]
Opinion:
The deduction is available even in respect of the loan taken from the co-operative bank. The deduction us/ 80C & U/s 24(b) towards Principal repayment of Housing loan and towards Interest on borrowed capital cannot be denied for the mere reason that the loan is availed from the Co-operative bank.

Query 2]
I am a senior citizen & have income from “other sources” above Rs. 2.50 Lacs /year. I had purchased units of “Bajaj Allianz Life Insurance co Ltd.” under its scheme “Bajaj Allianz Unit Gain” as per details below:-
1.      Date of Purchase- 23.03.2006 (F-Y 2005-06), Cost of Index- 497, Amount Invested- Rs. 60,000/-
2.      Date of sale-19.01.2013 (F-Y 2012-13), Cost of Index- 852, Sale Amount - Rs.81, 877/-
3.      Indexed cost of Purchase- Rs. 60,000 * 852 / 497 = Rs.1,02,857/-
4.      Hence, Capital Loss = Rs.1, 02,857-81,877 = 20,980/-

I shall be obliged to know whether this capital loss of Rs. 20,980/- can be adjusted against capital gain on sale of UTI units, Mutual Fund units etc. or against “Income from other sources” during   F-Y 2012-13 and/or can be carried forward in the subsequent 8 years.
[R.P.Gupta Nagpur-rpgupta@murliindustries.com]
Opinion:
1.      Before coming to your query, one needs to understand the tax treatment of income arising form transfer of Mutual Funds. The tax treatment of income arising from sale of mutual funds is different for debt funds vis a vis equity fund, as under:
i) Debt Fund:
a] For sale within one year from the date of its purchase, the difference between sale price & cost of acquisition would be taxable as Short Term Capital Gain in the hands of Investor. It will be taxable like other regular income of the assessee.
b] For sale after one year from the date of purchase, the difference between sale price & cost of acquisition would be taxable as Long Term Capital Gain in the hands of Investor & would be taxed at a rate which is lower of the following two:
 - 10% without indexation or
 - 20% with indexation benefit
ii) Equity Fund:
a] For sale within one year from the date of its purchase, the difference between sale price & cost of acquisition would be treated as Short Term Capital Gain in the hands of Investor & would be taxable @ 15% u/s 111A of the I.T. Act-1961.
b] For sale after one year from the date of purchase, the difference between sale price & cost of acquisition would be treated as Long Term Capital Gain in the hands of Investor &
would be exempt from tax u/s 10(38).
2.      If you are transferring equity fund as mentioned in 1(ii)(b) above, then any loss arising cannot be set off against any income whatsoever. However, if you are transferring any fund other than equity fund then
a] You can adjust it against other taxable LONG term capital gain arising from the transfer of other mutual funds
b] No set off is possible against Income from Other source against such long term Capital loss.

Query 3]
I am a Central Govt. Civilian Employee employed after 01.01.2004.  10% of my (Basic Salary plus Dearness Allowance) deducted towards New Pension Scheme which is mandatory and the matching amount is contributed by Employer i.e. Central Govt.  My queries are is as under:
1.      What will be tax treatment of contribution made by me for F.Y. 2012-13?
2.      What will be tax treatment of contribution made by employer for F.Y. 2012-13?
3.      Is it true, contributions made by me and matching amount of Govt are counted for Gross Total Income in F.Y. 2012-13 and subsequently deducted u/s 80C?
4.      Any valuable information related to New Pension Scheme.
Please elaborate, if possible, with example. [Sunil Kumar Singh, Chhinwara- sunilsinghiti@gmail.com]
Opinion:
1.      Employee’s Contribution:
Deduction is available under section 80CCD(1) in respect of employee’s contribution in the year in which contribution is made. However no deduction is available in respect of Employee’s contribution, which is in excess of 10% of the salary of the Employee.
2.      Employer’s contribution:
Employer’s contribution to NPS is taxable as salary income in the year of contribution. However, Deduction available is under section 80CCD(2) in respect of employer’s contribution- Contribution by employer to NPS is deductible in hands of the concerned employee in the year in which contribution is made. However, no deduction is available in respect of employer’s contribution which is in excess of 10% of the salary of the employee.
3.      Deduction & Taxability:
Employer & Employee contribution forms part of the income of the salaried assessee as mentioned above. Both the contributions are eligible for deduction u/s 80CCD read with section 80C of the IT Act. The aggregate amount of deduction under section 80C, 80CCC and 80CCD cannot exceed Rs. 1,00,000/-.
4.      Other Information:
Pension (or any other payment) out of NPS account (for which deduction has been claimed under section 80CCD) will be taxable in the hands of recipient. If, however, the amount of pension received from NPS is used for purchasing an annuity plan in the same previous year, then it will be exempt from tax.
For calculating 10% limit for the above purpose, “salary” includes dearness allowance, if the terms of employment but excludes all other allowances and perquisites (in other words, Salary for this purpose has the same meaning which is applicable in the case of house rent allowance).

Sunday, January 20, 2013

“LOAN TAKEN FOR PURCHASE OF PLOT – WHETHER ELIGIBLE FOR HOUSING LOAN DEDUCTIONS?”


TAX TALK-21.01.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“LOAN TAKEN FOR PURCHASE OF PLOT – WHETHER ELIGIBLE FOR HOUSING LOAN DEDUCTIONS?”
Query 1]
1.      I have a query. I took a loan from SBI (May, 2012) for Rs. 20,00,000/- for purchasing a residential plot under Govt. scheme. The bank gave me a loan under the realty category. My monthly installment is Rs 24, 465/ but I'm not getting any rebate in income tax. My query is, how I can get the income tax rebate on the interest amount I'm paying to the bank every year.
For that,
A.                 Do I need to build one room, kitchen and toilet and then start claiming the income tax exemption? Or
B.                Should I go for additional loan from the bank to construct a house?
My query is, if I go for "A", will I get the income tax exemption? Or if I go for option "B", will I get exemption on the new loan only or whether it will be addition of two loans interest? Kindly suggest me.
2.      My second query is, as my plot is mortgaged with the bank, do I need to inform them before starting the construction and if yes, what is the procedure for that?
Opinion:
1.      Deduction towards the Interest on Housing loan u/s 24(b) & towards repayment of the principal portion of housing loan u/s 80C is available in respect of loan taken for purchase or construction of the house property.
2.      The loan taken merely for purchase of plot would not be eligible for deduction, neither u/s 24(b) nor u/s 80C. However, where the assessee constructs the house property on the plot purchased by availing loan, then the tax payer can claim deduction;
a] U/s 24(b) towards interest payment:.
For deduction up to Rs. 1.50 Lacs towards interest payment, the house construction need to be completed within a period of 3 years from the date of first disbursement of bank loan. If the construction is not completed within a period of 3 years, deduction would be restricted to a maximum of Rs. 30,000/-.
b] U/s 80C towards the principal repayment:
The deduction is available subject to the condition that the loan is availed from the Banks or Housing Finance Company or LIC or  NHB or other specified lender only.
3.      It may further be noted that Interest in respect of pre-construction is deductible in five equal annual installments commencing from the financial year in which the construction of house is completed. The “pre-construction period” means the period commencing on the date of borrowing & ending on the March 31st immediately prior to the date of completion of construction /acquisition. If the house is completed in any particular year then one should note that the pre-construction interest doesn’t include the interest for the period from 1st April of that year to the date of completion in that year.
4.      With above basic background of the provision under the Income Tax Act-1961, point wise opinion to your queries are as under:
A. No deduction towards interest is available on the loan taken for purchase of plot (which is not let out). The principal repayment in such case is also not eligible for deduction u/s 80C.
B. If the house property is constructed within a period of 3 years from the date of first disbursement then entire amount of interest, subject to a maximum of Rs. 1.50 Lacs, can be claimed as deduction. If the construction is completed after a period of 3 Years, deduction amount u/s 24(b) cannot exceed Rs. 30,000/ though deduction towards Principal repayment u/s 80C, subject to overall maximum cap of Rs. 1 Lacs, is available fully. In case of plot purchase, the Construction of a residential house property is a condition precedent for claiming deduction u/s 24(b) & u/s 80C. In your specific case, the deduction would be eligible even if you construct the house out of your own resources.
C. Additional loan may be availed for the construction of the house property though it is not mandatory to avail the additional loan for claiming the deductions. If you avail the additional loan for construction of a house property, then the deduction would be available on both the loans taken together.
D. In normal course, the construction could be commenced without informing to the bank as the mortgaged title is not affected by carrying out the construction in the said plot.


Query 2]
I want to know, my brother residing in Nagpur, is getting House Rent Allowance Rs. 9,280/- and he is paying Rs. 6,000/- as House rent. His total Basic is Rs 46, 400/- pm plus 72% DA.
Can he claim Income tax rebate for the amount he is paying as house rent? [Rajesh-rajesh4971@yahoo.com]
Opinion:
Salaried Assessees who are in receipt of House Rent Allowance (HRA) from an employer can claim an exemption u/s 10(13A) of the Income Tax Act-1961 read with Rule 2A of the Income Tax Rules, 1962.
The least of following can be claimed as deduction u/s 10(13A):-
a.       An amount equal to 50% of salary, where the residential house is situated at Bombay, Calcutta, Delhi or Madras and an amount equal to 40% of salary where residential house is situated at any other place;
b.      House rent allowance received by the employee in respect of the period during which the rental accommodation is occupied by the employee during the previous year; or
c.      The excess of rent paid over 10% of salary.
Following points need to be taken in to consideration while calculating the amount of HRA admissible as exemption u/s 10(13A):
“Salary” for the purpose of computation of exemptions u/s 10(13A) means Basic Salary and includes Dearness Allowance if terms of employment so provide. It also includes commission based on a fixed percentage of turnover achieved by an employee as per the terms of contract of employment AND EXCLUDES ALL OTHER ALLOWANCE & PERQUISITE. Exemption is not available where an employee lives in his own house, or in a house for which he doesn’t pay any rent.



Saturday, January 12, 2013

“WORK IN PROGRESS & REVENUE RECOGNITION IN THE CASE OF BUILDERS & DEVELOPERS”


TAX TALK-14.01.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“WORK IN PROGRESS & REVENUE RECOGNITION IN THE CASE OF BUILDERS & DEVELOPERS”

Query 1]
I have a question about how to calculate WIP (Work in Progress) in case of Builder and Developers business. Please provide any illustration if possible for the revenue recognition in the case of Builders & Developers. I have read AS 7 but could not understand. Whether WIP in first year of developers business = Land Purchase for Development + Direct Expenses incurred on such land? What will be the treatment in next year if some of the flats sold out in second year?
For example,
1.      In 2010: Rs. 20 Lacs (Land Cost) (having 10 flats), Rs. 1 Lacs (Direct Exps such as stamp duty etc), what will be WIP?
2.      In 2011: Rs. 50 Lacs sale of Flats (5 flats sold), WIP in this year? Please elaborate. [Rajesh -advrajesh_3706@hotmail.com]
Opinion:
1.      A real estate project normally get spreads over for more than one accounting period. The revenue recognition and accounting in such cases still remains a complex issue.
2.      Accounting Standard-7 issued by the Institute of Chartered Accountants of India (ICAI) in 1983 is related to the accounting for Construction Contract. Old AS-7 recognized two methods, i.e., percentage of completion method or completed contract method and an enterprise had an option to follow either of the two methods. AS-7 has been revised now and it recognizes only the Percentage Completion Method. “Completed Contract method” no longer finds mention in the Revised AS-7. However, it may be noted that the said Accounting Standard is related to accounting for construction contracts and it would not have normally applied to builders or developers as nature of their business is not of executing construction contracts but of sale of the constructed units.
[In the opinion of Expert Advisory Committee of the ICAI reported in The Chartered Accountant (Vol. 52, No. 3) at page 232, revised AS 7 would not apply to builders carrying on construction on their own account for sale of constructed units; rather AS 9 would apply].
3.      Revenue in the case of Real estate may be recognized as per AS-9 which is related to Revenue Recognition. As per AS-9, revenue should be accounted when significant risk and rewards of ownership are transferred to the buyer. The Accounting standard on revenue recognition (AS 9) does not provide adequate clarity on timing and basis for recognizing revenue for the real estate transaction. To provide detailed guidelines, a Guidance note was issued by the ICAI in May-2006 on Recognition of Revenue by Real Estate Developers. It has been suitably revised by ICAI in February 2012 to provide for the detailed mechanism for recognizing the revenue in the case of builders & developers.
4.      As per the revised guidance note:
a] If the economic substance of the transaction is similar to construction contracts, principles of AS-7 should be applied.
b] If real estate transaction is in principle similar to sale of goods and services, principles of AS-9 should be applied.
In short, the Guidance note
permits a developer to follow either percentage completion method or sale method depending on the nature of the transaction.
5.      In quite a few judgments the only issue was whether percentage completion method or completed contract method is appropriate for a builder and it has been held that completion method is appropriate, if regularly followed by assessee.
6.      For ease of reference and access, I have uploaded the revised “Guidance Note on Accounting for Real Estate Transactions” at www.nareshjakhotia.blogspot.com.
7.      On the basis of information and data provided by you, in your specific case,
a] In the first year, WIP would be land cost plus direct expenses incurred thereon i.e., Rs. 21 Lacs.
b] In the second year, subject to AS-9, the profit on 5 Flats sold will be recognized and the balance proportionate amount of WIP would be carried forward.

Query 2]
I have a demat a/c with ICICI Bank for a long period. I have made transaction in this A/c up to financial year 2011-12 only. There is no transaction whatsoever in the financial year 2012-13. Am I eligible for deduction under section 80CCG if I invest Rs. 50,000/- in RGESS scheme in the current financial year? If not, what is the alternative to get this benefit?
[S.C.Singh- s_ch_singh@yahoo.co.in]
Opinion:
Deduction u/s 80CCG (RGESS) is available only to New Retail Investors, identified on the basis of their PAN numbers.
Following residents Individual shall be considered as “New Retail Investor” under the RGESS:  
a.       any individual who has not opened a demat account and has not made any transactions in the derivative segment as on the date of notification of the Scheme;
b.      any individual who has opened a demat account before the notification of the Scheme but has not made any transactions in the equity segment or the derivative segment till the date of notification of the Scheme, and
c.      any individual who is not the first account holder of an existing joint demat account shall be deemed to have not opened a demat account for the purposes of this Scheme
In your specific case, since you already have a demat account and have done the transactions as well, you will not be considered as “New Retail Investor” and will not be entitled for deduction u/s 80CCG.



Friday, January 11, 2013

Rajiv Gandhi Equity Savings Scheme, 2012 [RGESS]

[TO BE PUBLISHED IN PART II, SECTION 3, SUB-SECTION (ii) OF THE GAZETTE OF INDIA, EXTRAORDINARY, DATED THE 23rd
Government of India November, 2012]
Ministry of Finance
Department of Revenue
Notification
New Delhi, the 23rd
(Income-tax) November , 2012.
S.O. 2777(E).— In exercise of the powers conferred by sub-section (1) of section 80CCG of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following Scheme, namely:-
1. Short title, commencement and application. - (1) This Scheme may be called the Rajiv Gandhi Equity Savings Scheme, 2012.
(2) It shall come into force on the date of its publication in the Official Gazette.
(3) This Scheme shall apply for claiming deduction in the computation of total income of the assessment year relevant to a previous year on account of investment in eligible securities under sub-section (1) of section 80CCG of the Income-tax Act, 1961.
2. Objective of Scheme.-The objective of the Scheme is to encourage the savings of the small investors in domestic capital market.
3. Definitions.- In this Scheme, unless the context otherwise requires,-
(i) “Act” means the Income-tax Act, 1961 (43 of 1961);
(ii) “demat account” means an account opened with the depository participant in accordance with the guidelines laid down by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(iii) “depository” means a company as defined in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 (22 of 1996);
(iv) “depository participant” means a participant as defined in clause (g) of sub-section (1) of section 2 of the Depositories Act, 1996 (22 of 1996);
(v) “eligible securities” means any of the following :-
(a) equity shares, on the day of purchase, falling in the list of equity declared as “BSE-100” or “ CNX-100” by the Bombay Stock Exchange and the National Stock Exchange, as the case may be;
(b) equity shares of public sector enterprises which are categorised as Maharatna, Navratna or Miniratna by the Central Government;
(c) Units of Exchange Traded Funds (ETFs) or Mutual Fund (MF) schemes with Rajiv Gandhi Equity Savings Scheme (RGESS) eligible securities as underlying, as mentioned in sub-clause (i) or sub-clause (ii) above, provided they are listed and traded on a stock exchange and settled through a depository mechanism;
(d) Follow on Public Offer of sub-clauses (i) and (ii) above;
(e) New Fund Offers (NFOs) of sub-clause (iii) above;
(f) Initial Public Offer of a public sector undertaking wherein the government shareholding is at least fifty-one per cent. which is scheduled for getting listed in the relevant previous year and whose annual turnover is not less than four thousand crore rupees during each of the preceding three years;
(vi) “ financial year” means a year commencing on the 1st day of April and ending on the 31st
(vii) “Form” means the Form appended to the Scheme; day of March;
(viii) “investment” means investment by an assessee in any of the eligible securities in accordance with the Scheme;
(ix) “new retail investor” means the following resident individuals:-
(a) any individual who has not opened a demat account and has not made any transactions in the derivative segment as on the date of notification of the Scheme;
(b) any individual who has opened a demat account before the notification of the Scheme but has not made any transactions in the equity segment or the derivative segment till the date of notification of the Scheme,
and any individual who is not the first account holder of an existing joint demat account shall be deemed to have not opened a demat account for the purposes of this Scheme
(x) “Scheme” means the Rajiv Gandhi Equity Savings Scheme;
(xi) words and expressions used and not defined in this Scheme, but defined in the Act, shall have the meanings respectively assigned to them in the Act.
4. Eligibility .- The deduction under the Scheme shall be available to a new retail investor who complies with the conditions of the Scheme and whose gross total income for the financial year in which the investment is made under the Scheme is less than or equal to ten lakh rupees.
5. Procedure at time of opening demat account.-The new retail investor shall follow the following procedure at the time of opening or designating a demat account :-
(a) the new retail investor shall open a new demat account or designate his existing demat account for the purpose of availing the benefit under the Scheme;
(b) the new retail investor shall submit a declaration in Form A to the depository participant who will forward the same to the depository for verifying the status of the new retail investor;
(c) the new retail investor shall furnish his Permanent Account Number (PAN) while opening the demat account or designating the existing account as a Rajiv Gandhi Equity Savings Scheme eligible account, as the case may be.
6. Procedure for investment under Scheme.- A new retail investor shall make investments under the Scheme in the following manner :-
(a) the new retail investor may make investment in eligible securities in one or more than one transactions during the year in which the deduction has to be claimed;
(b) the new retail investor may make any amount of investment in the demat account but the amount eligible for deduction, under the Scheme shall not exceed fifty thousand rupees;
(c) the eligible securities brought into the demat account, as declared or designated by the new retail investor, will automatically be subject to lock-in during its first year, as per the provisions of paragraph 7, unless the new retail investor specifies otherwise and for such specification, the new retail investor shall submit a declaration in Form B indicating that such securities are not to be included within the above limit of investment;
(d) the new retail investor shall be eligible for a deduction under sub-section (1) of section 80CCG of the Act in respect of the actual amount invested in eligible securities , in the first financial year in respect of which a
declaration in Form B has not been made, subject to the maximum investment limit of fifty thousand rupees;
(e) the new retail investor who has claimed a deduction under sub- section (1) of section 80CCG of the Act, in any assessment year, shall not be allowed any deduction under the Scheme for any subsequent assessment year;
(f) the new retail investor shall be permitted a grace period of three trading days from the end of the financial year so that the eligible securities purchased on the last trading day of the financial year also get credited in the demat account and such securities shall be deemed to have been purchased in the financial year itself;
(g) the new retail investor may also keep securities other than the eligible securities covered under the Scheme in the demat account through which benefits under the Scheme are availed;
(h) the new retail investor can make investments in securities other than the eligible securities covered under the Scheme and such investments shall not be subject to the conditions of the Scheme nor shall they be counted for availing the benefit under the Scheme;
(i) the investment under the Scheme shall consist of all eligible securities covered under the Scheme that are initially bought by the investor under the Scheme or that are bought subsequently by the investor as per the provisions of the Scheme;
(j) the deduction claimed shall be withdrawn if the lock-in period requirements of the investment are not complied with or any other condition of the Scheme is violated.
7. Period of holding requirements. - (1) The period of holding of eligible securities shall be three years to be counted in the manner detailed hereunder.
(2) All eligible securities are required to be held for a period called the fixed lock-in period which shall commence from the date of purchase of such securities in the relevant financial year and end one year from the date of
purchase of the last set of eligible securities (in the same financial year) on which deduction is claimed under the Scheme.
(3) The new retail investor shall not be permitted to sell, pledge or hypothecate any eligible security during the fixed lock-in period.
(4) The period of two years beginning immediately after the end of the fixed lock-in period shall be called the flexible lock-in period.
(5) The new retail investor shall be permitted to trade the eligible securities after the completion of the fixed lock-in period subject to the following conditions:-
(a) the new retail investor shall ensure that the demat account under the Scheme is compliant for a cumulative period of a minimum of two hundred and seventy days during each of the two years of the flexible lock-in period as laid down hereunder:-
(A) the demat account shall be considered compliant for the number of days where value of the investment portfolio of eligible securities , within the flexible lock-in period, is equal to or higher than the amount claimed as investment for the purposes of deduction under section 80CCG of the Act;
(B) in case the value of investment portfolio in the demat account falls due to fall in the market rate of eligible securities in the flexible lock-in period, then notwithstanding sub clause(A), -
(i) the demat account shall be considered compliant from the first day of the flexible lock-in period to the day any such eligible securities are sold during this period;
(ii) where the assessee sells the eligible securities mentioned in sub-clause (B) from his demat account, he shall have to purchase eligible securities and the said demat account shall be compliant from the day on which the value of the investment portfolio in the account becomes -
(I) at least equivalent to the investment claimed as eligible for deduction under section 80CCG of the Act or;
(II) the value of the investment portfolio under the Scheme before such sale,
whichever is less.
(6) The new retail investor’s demat account created under the Scheme shall, on the expiry of the period of holding of the investment, be converted automatically into an ordinary demat account.
(7) For the purpose of valuation of investment during the flexible lock-in period, the closing price as on the previous day of the date of trading, shall be considered.
(8) While making the initial investments upto fifty thousand rupees, the total cost of acquisition of eligible securities shall not include brokerage charges, Securities Transaction Tax, stamp duty, service tax and all taxes, which are appearing in the contract note.
(9) Where the investment of the new retail investor undergoes a change as a result of involuntary corporate actions like demerger of companies, amalgamation, etc. resulting in debit or credit of securities covered under the Scheme, the deduction claimed by such investor shall not be affected.
(10) In case of voluntary corporate actions like buy-back, etc. resulting only in debit of securities, where new retail investor has the option to exercise his choice, the same shall be considered as a sale transaction for the purpose of the Scheme.
(11) The Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall notify the corporate actions, referred to in sub-paragraph (9), allowed under the Scheme in this regard.
8. If the new retail investor fails to fulfil any of the provisions of the Scheme, the deduction originally allowed to him under sub-section (1) of section 80CCG of the Act for any previous year, shall be deemed to be the income of the assessee of such previous year and shall be liable to tax for the assessment year relevant to such previous year.
9. (1) The depository shall certify the new retail investor status of the assessee at the time of designating his demat account as demat account for the purpose of the Scheme.
(2) The depository participant shall furnish an annual statement of the eligible securities invested in or traded through the demat account to the demat account holder.
10. The depository shall provide a consolidated statement of details in the electronic format, as specified in Form C, on all the Rajiv Gandhi Equity Savings Scheme beneficiaries to the Director General of Income Tax (Systems) or any other person authorised by him, within a period of thirty days from the end of the relevant financial year.
11. For the purpose of paragraph 10, the Director General of Income Tax (Systems) shall determine the procedures, formats and standards for furnishing of the report in electronic format in Form C by the depositories.
12. Assessees shall be liable to submit the relevant records to the income-tax authorities for verification, as and when required.
[ Notification No. 51 /2012 F. No. 142/35/2012 –TPL)
(Raman Chopra)
Director (TPL-II)

Form A
[See paragraph 5(b)]
Declaration to be submitted by the investors to the depository participants for availing the benefits under the Rajiv Gandhi Equity Savings Scheme.
Name of the Investor:
(first holder)
Address of the investor:
Permanent Account Number (PAN):
1. It is hereby certified that* ---
(a) I do not have a demat account and I have not traded in any derivatives.
(b) I have demat account no _________________ in ____________________ depository participant but I have not traded in any equity shares or derivatives in this account.
(c) I have a joint demat account no _________________ in ____________________ depository participant but I am not the first account holder.
2. I hereby declare that I have read and understood all the terms and conditions of the Rajiv Gandhi Equity Savings Scheme.
3. It is hereby verified that I am an eligible new retail investor for availing the benefits under the Rajiv Gandhi Equity Savings Scheme.
4. I undertake to abide by all the requirements and fulfill all obligations under the Scheme, and will comply with all the terms and conditions of the Scheme.
5. I understand that, in case I fail to comply with any condition specified in the Scheme, the benefits availed there under will be withdrawn and the tax shall be payable by me accordingly.
Signature of the Investor
Place:
Date:
* Tick which ever is appropriate.
Form B
[See paragraph 6(c) and (d)]
Declaration to be submitted by the new retail investor to the depository participant on purchase of eligible securities.
To
Depository participant
Address
It is hereby informed that I have demat account no _________________ in ____________________ depository participant and the following securities
(a)
(b)
(c)
(d)
(e) purchased in the aforesaid demat account on ______________are not to be included as investment for the purpose of the Rajiv Gandhi Equity Savings Scheme.
Signature
Name of the Investor:
(first holder)
Address of the investor:
Permanent Account Number (PAN):
Form C
[See paragraphs 10 and 11]
Annual report to be submitted by the depository to the Income Tax Department in Electronic Format before 30th
April.
(For 80 CCG benefits of Financial Year 2012-13)
2012-13
Report to be furnished by 30th
2013-14 April 2013
Report to be furnished by 30th
2014-15 April 2014
Report to be furnished by 30th
2015-16 April 2015
Report to be furnished by 30th April 2016
Name
PAN
DEMAT A/c No.
Date of opening A/c
Date of investment for the Purpose of lock-in (date of making the last investment in RGESS# eligible scrip)
Amount of Investment
Scrips locked in RGESS#
Whether A/c eligible under the RGESS# Scheme
Whether A/c compliant with RGESS# with respect to fixed lock-in*
Whether A/c compliant with RGESS# with respect to 270 days period*
Whether A/c compliant with RGESS# with respect to 270 days period*
* The Electronic Format shall be determined by the Director General of Income Tax (Systems) by 31st
**The Financial Year shall be enhanced by one Financial Year every year. March, 2013.
#RGESS means the Rajiv Gandhi Equity Savings Scheme.

Guidance Note on Accounting for Real Estate Transactions (Revised)

GN(A) 23 (Revised 2012)

Guidance Note on Accounting for Real Estate Transactions

Foreword
Growth of the real estate sector in the recent past in India, indicates the
importance of this sector in Indian economy. Along with fulfilling one of the
basic necessities for human existence, i.e., housing, this sector has also been
used as a key tool by the Indian Government in achieving an overall socioeconomic
growth during the last few decades. The development in the real
estate market encompasses growth in both commercial and residential spheres.
As there are large numbers of entities in this segment, there is intense pressure
amongst the entities to stay on top in the investors’ choice list.
The Institute of Chartered Accountants of India (ICAI), while realising the role
of this sector in fuelling growth of Indian economy and recognising need for
guidance on accounting for real estate sales, in 2006, issued Guidance Note
on Recognition of Revenue by Real Estate Developers.
With the fast growth of this sector, the volume and the number of transactions
in this sector have also grown significantly. In the recent past, different practices
followed by the various real estate developers in recognising their revenue has
also been amongst the favourite headlines in the news across the country.
Considering this, ICAI felt that the revision of the Guidance Note is necessary.
I appreciate the initiative taken by the Accounting Standards Board in this regard.
I wish to place on record my deep appreciation of CA. Manoj Fadnis, Chairman,
Accounting Standards Board, and members of the Accounting Standards Board
who have made invaluable contribution in the finalisation of this Guidance Note.
I hope that this revised Guidance Note will be useful both to our members as
well as the others concerned.
New Delhi CA. G. Ramaswamy
February, 2012 President
Compendium of Guidance Notes - Accounting
354
Preface
In recent years, with the increase in the demand for real estate, due to factors
such as the fast growing population, introduction of various home loan schemes,
the growth in the real estate sector has increased manifold. This sector has
also emerged as one of the best investing opportunities not only for Indian
investors but also for foreign investors. Huge foreign direct investment in the
last five years in this sector is witness to this fact. As the premier accounting
standards-setting body, the ICAI, due to the distinguished revenue model of
this sector, felt that the accounting guidance earlier given by the ICAI in the
Guidance Note on Recognition of Revenue by Real Estate Developers required
revision, so that the diverse practices followed by different players in the market
can be harmonised into a single uniform practice, particularly, in the application
of Percentage of Completion Method of recognising the revenue. The Guidance
Note primarily provides guidance on application of percentage of completion
method, where it is appropriate to apply this method, i.e., where such
transactions and activities of real estate have the same economic substance
as construction contracts. For this purpose, the Guidance Note draws upon the
principles enunciated in Accounting Standard (AS) 7, Construction Contracts.
In respect of transactions of real estate which are in substance similar to delivery
of goods, principles enunciated in Accounting Standard (AS) 9, Revenue
Recognition, are applied.
I would like to convey my sincere thanks to our Honourable President CA.
G. Ramaswamy and Vice-President CA. Jaydeep N. Shah and CA.S.
Santhanakrisnan, Vice- Chairman, ASB for their constant support and cooperation.
I would like to take this opportunity to place on record my deep appreciation of
the efforts put in by CA. J. Venkateshwarlu, CA. Vinod Jain, CA. P. R. Ramesh
and Shri Chandrasekhar Gokhale, who made immense contribution in the
preparation of the basic draft of the revised Guidance Note. I would also like to
thank various representatives of the industry, market participants, our members
and other individuals for giving their invaluable suggestions on the draft
Guidance Note from time to time.
I sincerely compliment Dr. Avinash Chander, Technical Director and CA.
Geetanshu Bansal, Senior Executive Officer, for their invaluable contribution
and efforts at various stages of finalising of the Guidance Note.
Accounting for Real Estate Transactions
355
I am confident that this Guidance Note will be extremely useful to the members
of the Institute and others interested in the subject.
New Delhi CA. Manoj Fadnis
February 11, 2012 Chairman
Accounting Standards Board
GN(A) 23 (Revised 2012)
Guidance Note on Accounting for Real
Estate Transactions
(The following is the text of the Guidance Note on Accounting for Real Estate
Transactions, issued by the Council of the Institute of Chartered Accountants
of India.)
1. Objective and Scope
Objective
1.1 The objective of this Guidance Note is to recommend the accounting
treatment by enterprises dealing in ‘Real Estate’ as sellers or developers. The
term ‘real estate’ refers to land as well as buildings and rights in relation thereto.
Enterprises who undertake such activity are generally referred to by different
terms such as ‘real estate developers’, ‘builders’ or ‘property developers’.
Scope
1.2 This Guidance Note covers all forms of transactions in real estate. An
illustrative list of transactions which are covered by this Guidance Note is as
under:
(a) Sale of plots of land (including long term sale type leases) without
any development.
(b) Sale of plots of land (including long term sale type leases) with
development in the form of common facilities like laying of roads,
drainage lines and water pipelines, electrical lines, sewage tanks,
water storage tanks, sports facilities, gymnasium, club house,
landscaping etc.
(c) Development and sale of residential and commercial units, row
houses, independent houses, with or without an undivided share
in land.
Accounting for Real Estate Transactions
357
(d) Acquisition, utilisation and transfer of development rights.
(e) Redevelopment of existing buildings and structures.
(f) Joint development agreements for any of the above activities.
1.3 The Guidance Note primarily provides guidance on application of
percentage of completion method where it is appropriate to apply this method
as explained in subsequent paragraphs as such transactions and activities of
real estate have the same economic substance as construction contracts. For
this purpose, the Guidance Note draws upon the principles enunciated in
Accounting Standard (AS) 7, Construction Contracts. In respect of transactions
of real estate which are in substance similar to delivery of goods principles
enunciated in Accounting Standard (AS) 9, Revenue Recognition, are applied.
1.4 Real estate transactions of the nature covered by Accounting Standard
(AS) 10, Accounting for Fixed Assets, Accounting Standard (AS) 12, Accounting
for Government Grants, Accounting Standard (AS) 19, Leases, and Accounting
Standard (AS) 26, Intangible Assets, are outside the scope of this Guidance
Note.
1.5 This Guidance Note should be applied to all projects in real estate which
are commenced on or after April 1, 2012 and also to projects which have already
commenced but where revenue is being recognised for the first time on or after
April 1, 2012. An enterprise may choose to apply this Guidance Note from an
earlier date provided it applies this Guidance Note to all transactions which
commenced or were entered into on or after such earlier date. This Guidance
Note supersedes the Guidance Note on Recognition of Revenue by Real Estate
Developers, issued by the Institute of Chartered Accountants of India in 2006,
when this Guidance Note is applied as above.
2. Definitions
2.1 Project – Project is the smallest group of units/plots/saleable spaces
which are linked with a common set of amenities in such a manner that unless
the common amenities are made available and functional, these units /plots /
saleable spaces cannot be put to their intended effective use.
A larger venture can be split into smaller projects if the basic conditions as set
out above are fulfilled. For example, a project may comprise a cluster of towers
Compendium of Guidance Notes - Accounting
358
or each tower can also be designated as a project. Similarly, a complete
township can be a project or it can be broken down into smaller projects.
2.2 Project Costs – Project costs in relation to a project ordinarily comprise:
(a) Cost of land and cost of development rights -All costs related to
the acquisition of land, development rights in the land or property
including cost of land, cost of development rights, rehabilitation
costs, registration charges, stamp duty, brokerage costs and
incidental expenses.
(b) Borrowing Costs – In accordance with Accounting Standard (AS)
16, Borrowing Costs which are incurred directly in relation to a
project or which are apportioned to a project .
(c) Construction and development costs – These would include costs
that relate directly to the specific project and costs that may be
attributable to project activity in general and can be allocated to
the project.
2.3 Construction costs and development costs that relate directly to a specific
project include:
(a) land conversion costs, betterment charges, municipal sanction fee
and other charges for obtaining building permissions;
(b) site labour costs, including site supervision;
(c) costs of materials used in construction or development of property;
(d) depreciation of plant and equipment used for the project ;
(e) costs of moving plant, equipment and materials to and from the
project site;
(f) costs of hiring plant and equipment;
(g) costs of design and technical assistance that is directly related to
the project;
Accounting for Real Estate Transactions
359
(h) estimated costs of rectification and guarantee work, including
expected warranty costs; and
(i) claims from third parties.
2.4 The following costs should not be considered part of construction costs
and development costs if they are material:
(a) General administration costs;
(b) selling costs;
(c) research and development costs;
(d) depreciation of idle plant and equipment;
(e) cost of unconsumed or uninstalled material delivered at site; and
(f) payments made to sub-contractors in advance of work performed.
2.5 Costs that may be attributable to project activity in general and can be
allocated to specific projects include:
(a) insurance;
(b) costs of design and technical assistance that is not directly related
to a specific project; and
(c) construction or development overheads; and
(d) borrowing costs.
Such costs are allocated using methods that are systematic and rational and
are applied consistently to all costs having similar characteristics. The allocation
is based on the normal level of project activity. Construction overheads include
costs such as the preparation and processing of construction personnel payroll.
2.6 Project revenues – Project revenues include revenue on sale of plots,
undivided share in land, sale of finished and semi-finished structures,
consideration for construction, consideration for amenities and interiors,
consideration for parking spaces and sale of development rights.
Compendium of Guidance Notes - Accounting
360
Project revenues are measured as the consideration received or receivable.
The measurement of project revenues is affected by a variety of uncertainties
that depend on the outcome of future events. The estimates often need revision
as events occur and uncertainties are resolved. Therefore, the amount of project
revenue may increase or decrease from one reporting period to the next.
3. Accounting for Real Estate Transactions
3.1 Real estate activities and transactions take diverse forms. While some
are for sale of land (developed or undeveloped), others are for construction,
development or sale of units that are not complete at the time of entering into
agreements for construction, development or sale.
3.2 The typical features of most construction/development of commercial and
residential units have all features of a construction contract – land development,
structural engineering, architectural design and construction are all present.
The natures of these activities are such that often the date when the activity is
commenced and the date when the activity is completed usually fall into different
accounting periods. It is not unusual for such activities to spread over two or
more accounting periods.
3.3 For recognition of revenue in case of real estate sales, it is necessary
that all the conditions specified in paragraphs 10 and 11 of Accounting Standard
(AS) 9, Revenue Recognition, are satisfied. As stated above, real estate sales
take place in a variety of ways and may be subject to different terms and
conditions as specified in the agreement for sale. Accordingly, the point of time
at which all significant risks and rewards of ownership can be considered as
transferred, is required to be determined on the basis of the terms and conditions
of the agreement for sale. In case of real estate sales, the seller usually enters
into an agreement for sale with the buyer at initial stages of construction. This
agreement for sale is also considered to have the effect of transferring all
significant risks and rewards of ownership to the buyer provided the agreement
is legally enforceable and subject to the satisfaction of conditions which signify
transferring of significant risks and rewards even though the legal title is not
transferred or the possession of the real estate is not given to the buyer. Once
the seller has transferred all the significant risks and rewards to the buyer, any
acts on the real estate performed by the seller are, in substance, performed on
behalf of the buyer in the manner similar to a contractor. Accordingly, revenue
in such cases is recognised by applying the percentage of completion method
on the basis of the methodology explained in AS 7, Construction Contracts.
Accounting for Real Estate Transactions
361
Further, where individual contracts are part of a single project, although risks
and rewards may have been transferred on signing of a legally enforceable
individual contract but significant performance in respect of remaining
components of the project is pending, revenue in respect of such an individual
contract should not be recognised until the performance on the remaining
components is considered to be completed on the basis of the aforesaid
principles. This Guidance Note, thus, provides guidance in the application of:
• Principles of AS 9 in respect of sale of goods for recognising
revenue, costs and profits from transactions of real estate which
are in substance similar to delivery of goods where the revenues,
costs and profits are recognised when the revenue recognition
process is completed; and
• Percentage completion method for recognising revenue, costs and
profits from transactions and activities of real estate which have
the same economic substance as construction contracts.
3.4 The application of the methods described in paragraph 3.3 above requires
a careful analysis of the elements of the transaction, agreement, understanding
and conduct of the parties to the transaction to determine the economic
substance of the transaction. The economic substance of the transaction is not
influenced or affected by the structure and/or legal form of the transaction or
agreement.
4. Application of Principles of AS 9 in Respect of
Sale of Goods to a Real Estate Project
4.1 The application of principles of AS 9 in respect of sale of goods requires
recognition of revenues on completion of the transaction/activity when the
revenue recognition process in respect of a real estate project is completed as
explained in paragraph 4.2 below.
4.2 The completion of the revenue recognition process is usually identified
when the following conditions are satisfied:
(a) The seller has transferred to the buyer all significant risks and
rewards of ownership and the seller retains no effective control of
the real estate to a degree usually associated with ownership;
Compendium of Guidance Notes - Accounting
362
(b) The seller has effectively handed over possession of the real
estate unit to the buyer forming part of the transaction;
(c) No significant uncertainty exists regarding the amount of
consideration that will be derived from the real estate sales; and
(d) It is not unreasonable to expect ultimate collection of revenue from
buyers.
4.3 Where transfer of legal title is a condition precedent to the buyer taking
on the significant risks and rewards of ownership and accepting significant
completion of the seller’s obligation, revenue should not be recognised till such
time legal title is validly transferred to the buyer.
5. Application of Percentage Completion Method
5.1 The percentage completion method should be applied in the accounting
of all real estate transactions/activities in the situations described in paragraph
3.3 above, i.e., where the economic substance is similar to construction
contracts. Some further indicators of such transactions/activities are:
(a) The duration of such projects is beyond 12 months and the project
commencement date and project completion date fall into different
accounting periods.
(b) Most features of the project are common to construction contracts,
viz., land development, structural engineering, architectural design,
construction, etc.
(c) While individual units of the project are contracted to be delivered
to different buyers these are interdependent upon or interrelated
to completion of a number of common activities and/or provision
of common amenities.
(d) The construction or development activities form a significant
proportion of the project activity.
5.2 This method is applied when the outcome of a real estate project can be
estimated reliably and when all the following conditions are satisfied:
Accounting for Real Estate Transactions
363
(a) total project revenues can be estimated reliably;
(b) it is probable that the economic benefits associated with the project
will flow to the enterprise;
(c) the project costs to complete the project and the stage of project
completion at the reporting date can be measured reliably; and
(d) the project costs attributable to the project can be clearly identified
and measured reliably so that actual project costs incurred can be
compared with prior estimates.
When the outcome of a project can be estimated reliably, project revenues and
project costs associated with the project should be recognised as revenue and
expenses respectively applying the percentage of completion method in the
manner detailed in paragraphs 5.3 to 5.8 below.
5.3 Further to the conditions in paragraph 5.2 there is a rebuttable
presumption that the outcome of a real estate project can be estimated reliably
and that revenue should be recognised under the percentage completion method
only when the events in (a) to (d) below are completed.
(a) All critical approvals necessary for commencement of the project
have been obtained. These include, wherever applicable:
(i) Environmental and other clearances.
(ii) Approval of plans, designs, etc.
(iii) Title to land or other rights to development/ construction.
(iv) Change in land use.
(b) When the stage of completion of the project reaches a reasonable
level of development. A reasonable level of development is not
achieved if the expenditure incurred on construction and
development costs is less than 25 % of the construction and
development costs as defined in paragraph 2.2 (c) read with
paragraphs 2.3 to 2.5.
Compendium of Guidance Notes - Accounting
364
(c) Atleast 25% of the saleable project area is secured by contracts
or agreements with buyers.
(d) Atleast 10 % of the total revenue as per the agreements of sale or
any other legally enforceable documents are realised at the
reporting date in respect of each of the contracts and it is
reasonable to expect that the parties to such contracts will comply
with the payment terms as defined in the contracts. To illustrate - If
there are 10 Agreements of sale and 10 % of gross amount is
realised in case of 8 agreements, revenue can be recognised with
respect to these 8 agreements.
5.4 When the outcome of a real estate project can be estimated reliably and
the conditions stipulated in paragraphs 5.2 and 5.3 are satisfied, project revenue
and project costs associated with the real estate project should be recognised
as revenue and expenses by reference to the stage of completion of the project
activity at the reporting date. For computation of revenue the stage of completion
is arrived at with reference to the entire project costs incurred including land
costs, borrowing costs and construction and development costs as defined in
paragraph 2.2. Whilst the method of determination of stage of completion with
reference to project costs incurred is the preferred method, this Guidance Note
does not prohibit other methods of determination of stage of completion, e.g.,
surveys of work done, technical estimation, etc. However, computation of
revenue with reference to other methods of determination of stage of completion
should not, in any case, exceed the revenue computed with reference to the
‘project costs incurred’ method. Illustration appended to this Guidance Note
clarifies the method of computation of revenue.
5.5 The project costs which are recognised in the statement of profit and
loss by reference to the stage of completion of the project activity are matched
with the revenues recognised resulting in the reporting of revenue, expenses
and profit which can be attributed to the proportion of work completed. Costs
incurred that relate to future activity on the project and payments made to subcontractors
in advance of work performed under the sub-contract are excluded
and matched with revenues when the activity or work is performed. This method
provides useful information to the extent of contract activity and performance
during a period.
5.6 The recognition of project revenue by reference to the stage of completion
of the project activity should not at any point exceed the estimated total revenues
Accounting for Real Estate Transactions
365
from ‘eligible contracts’/other legally enforceable agreements for sale. ‘Eligible
contracts’ means contracts/ agreements specified in paragraph 5.3 where at
least 10% of the contracted amounts have been realised and there are no
outstanding defaults of the payment terms in such contracts.
5.7 When it is probable that total project costs will exceed total eligible project
revenues, the expected loss should be recognised as an expense immediately.
The amount of such a loss is determined irrespective of:
(a) commencement of project work; or
(b) the stage of completion of project activity.
5.8 The percentage of completion method is applied on a cumulative basis
in each reporting period to the current estimates of project revenues and project
costs. Therefore, the effect of a change in the estimate of project costs, or the
effect of a change in the estimate of the outcome of a project, is accounted for
as a change in accounting estimate. The changed estimates are used in
determination of the amount of revenue and expenses recognised in the
statement of profit and loss in the period in which the change is made and in
subsequent periods.
5.9 The changes to estimates referred to in paragraph 5.8 above also include
changes arising out of cancellation of contracts and cases where the property
or part thereof is subsequently earmarked for own use or for rental purposes. In
such cases any revenues attributable to such contracts previously recognised
should be reversed and the costs in relation thereto shall be carried forward
and accounted in accordance with AS 10, Accounting for Fixed Assets.
6. Accounting for Sale of Land or Plots
A. Sale of plots of land without any development
Revenue from sale of land or plots should be recognised when all the conditions
in paragraph 4.2 above are met.
B. Sale of developed plots
Where the development activity is significant and if the projects meet the criteria
specified in paragraphs 3.3 and 5.1 above, the percentage completion method
is used to account for such sales.
Compendium of Guidance Notes - Accounting
366
7. Transferable Development Rights
7.1 Transferable Development Rights (TDRs) are generally acquired in
different ways as mentioned hereunder:
(a) Direct purchase.
(b) Development and construction of built-up area.
(c) Giving up of rights over existing structures or open land.
7.2 When development rights are acquired by way of direct purchase or on
development or construction of built- up area, cost of acquisition would be the
cost of purchases or amount spent on development or construction of built-up
area, respectively. Where development rights are acquired by way of giving up
of rights over existing structures or open land, the development rights should
be recorded either at fair market value or at the net book value of the portion of
the asset given up whichever is less. For this purpose, fair market value may
be determined by reference either to the asset or portion thereof given up or to
the fair market value of the rights acquired whichever is more clearly evident.
7.3 When development rights are utilised in a real estate project by an
enterprise, the cost of acquisition should be added to the project costs.
7.4 When development rights are sold or transferred, revenue should be
recognised when both the following conditions are fulfilled:
(a) title to the development rights is transferred to the buyer; and
(b) it is not unreasonable to expect ultimate realisation of revenue.
8. Transactions with Multiple Elements
8.1 An enterprise may contract with a buyer to deliver goods or services in
addition to the construction/development of real estate [e.g. property
management services, sale of decorative fittings (excluding fittings which are
an integral part of the unit to be delivered), rental in lieu of unoccupied premises,
etc.]. In such cases, the contract consideration should be split into separately
identifiable components including one for the construction and delivery of real
estate units.
Accounting for Real Estate Transactions
367
8.2 The consideration received or receivable for the contract should be
allocated to each component on the basis of the fair market value of each
component.
8.3 The accounting of each of the components should be in accordance with
paragraph 3.3 above.
9. Disclosure
9.1 An enterprise should disclose:
(a) the amount of project revenue recognised as revenue in the
reporting period;
(b) the methods used to determine the project revenue recognised in
the reporting period; and
(c ) the method used to determine the stage of completion of the project.
9.2 An enterprise should also disclose each of the following for projects in
progress at the end of the reporting period:
(a) the aggregate amount of costs incurred and profits recognised (less
recognised losses) to date; and
(b) the amount of advances received;
(c) the amount of work in progress and the value of inventories;
(d) Excess of revenue recognised over actual bills raised (unbilled
revenue).
Illustration on application of percentage completion method
Total saleable area 20,000 Sq. ft.
Estimated Project Costs( This comprises
land cost of Rs. 300 Lakhs and construction
costs of Rs. 300 Lakhs) Rs. 600 lakhs
Compendium of Guidance Notes - Accounting
368
Cost incurred till end of reporting period
(This includes land cost of Rs. 300 lakhs and
construction cost of Rs. 60 Lakhs) Rs. 360 Lakhs
Total Area Sold till the date of reporting period 5,000 Sq. ft.
Total Sale Consideration as per Agreements
of Sale executed Rs. 200 Lakhs
Amount realised till the end of the reporting Rs.50 Lakhs
period
Percentage of completion of work 60% of total project cost
including land cost or
20% of total construction
cost
At the end of the reporting period the enterprise will not be able to recognise
any revenue as reasonable level of construction, which is 25% of the total
construction cost, has not been achieved, though 10% of the agreement amount
has been realised.
Continuing the illustration
If the work completed till end of reporting period is
(This includes land cost of Rs 300 Lakhs and
construction cost of Rs 90 lakhs) Rs. 390 Lakhs
Percentage of completion of work would be 65% of total project cost
including land cost or
30% of construction cost
The enterprise would be able to recognise revenues at the end of the accounting
period. The revenue recognition and profits would be as under:
Revenue recognised
(65 % of Rs 200 lakhs as per Agreement of Sale) Rs. 130 Lakhs
Proportionate cost (5000 sft./20,000 sft.) X 390 Rs. 97.50 Lakhs
Income from the project Rs. 32.50 Lakhs
Work in progress to be carried forward Rs. 292.50 Lakhs

Tuesday, January 8, 2013

“NEW RETAIL INVESTOR CAN CLAIM DEDUCTION U/S 80CCG UP TO RS. 25,000/-”


TAX TALK-07.01.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant
“NEW RETAIL INVESTOR CAN CLAIM DEDUCTION U/S 80CCG UP TO RS. 25,000/-”
Query 1]
I am a Central Government employee & my date of birth is 11-03-1953. I am Retiring on 31-03-2013 on superannuation. My query is that as I am completing 60 Years on 11-03-2013,
am I eligible for exemption limit of Income-tax of Rs. 2,50,000/- being a senior citizen during the year 2012-2013? Please specify. [K. S. Ikhar, Pratap Nagar, Nagpur-p_ikhar@rediffmail.com]
Opinion:
Senior citizen shall be entitled for the basic exemption limit of Rs. 2.50 Lacs for the F.Y. 2012-2013. A senior citizen is a person who has completed the age of 60 years at any time during the previous year. Since you will be completing the age of 60 years during the F.Y. 2012-13, you are certainly entitled to the basic exemption limit of Rs. 2.50 Lacs for the financial Year 2012-13.

Query 2]
I have shifted from Nagpur (Maharashtra) to Bangalore (Karnataka) and my address in the PAN is of Chimur (Chandrapur District). I am still filing my Income tax return from Nagpur office (Salary circle) physically through my friends as I am a pensioner of Maharashtra Govt. Now, can I submit my I-T return physically (I do not want do e-filing) in Bangalore income tax office and with the same PAN card? [n_premkumar@hotmail.com]
Opinion:
You can file your income tax return manually in Banglore. Advisably, you should get the address changed in the PAN data base. For this, you have to make an application in “Request for New PAN Card or/and Changes or Correction in PAN data”. The form can be downloaded from the websites of UTI Technology Services Ltd (UTITSL), National Securities Depository Ltd (NSDL), or the I-T department [www.utitsl.co.in, www.tin-nsdl.com or www.incometaxindia.gov.in]. You need to tick the address box at the left margin of the form. The form can be submitted in Bangalore itself at PAN application centers of UTITSL and NSDL, the addresses of which are available at the above mentioned website.

Query 3]
My daughter has got a job recently as Asst Professor. It is the beginning of her career. How much percentage of income, she should invest & save in PF, PPF, FD's, medical, insurance, LIC, mutual funds? Kindly guide so that she can take informed decision. [Narendra-np_anand7@rediffmail.com]
Opinion:
As far as saving is concerned, earlier the start, better the miracle of interest compounding. The importance of saving cannot be overruled at any point of time. Make hay while the sun shines and the money saved is money earned hold true at all the time. The other reason that you should start saving early is that you will need to save less money. 

As far as the investment from the income tax perspective is concerned, tax payer can invest
a] Rs. 1 Lacs in the PF/PPF/LIC/ELSS depending upon the returns and risk appetite of the individual investor. The investment of Rs. 1 Lacs will be eligible for deduction u/s 80C.
b] Rs. 15,000/- investment can be done on the Mediclaim policy to have deduction u/s 80D.
c] Further, a new retail individual investor who has not opened a demat account and has not made any transaction in the derivative segment so far or who has opened a demat account but has not made any transaction in the equity segment or the derivative segment, can further have the benefit of deduction u/s 80CCG up to a maximum of Rs. 25,000/- on investment of Rs. 50,000/- The deduction is available only if the income of assessee doesn’t exceed Rs. 10 Lacs & the investment is done in “Eligible Securities”. The detailed scheme titled “RAJIV GANDHI EQUITY SAVING SCHEME (RGESS)” as notified recently can be accessed at www.nareshjakhotia.blogspot.com.

Query 4]
Whether the businessmen are still eligible for deduction towards the rent payment of residential house property or it is available only to the salaries assessee who receives Rent allowance from their company? [Kishore Wadattiwar, Chandrapur]
Opinion:
Any individual (whether salaried or businessmen) can claim deduction from its income towards rent payment of a residential accommodation u/s. 80GG of the Income Tax Act.
The condition precedent to claiming deduction under this section is:-
a] He has to prepare a declaration in Form No.10BA.
b] He or his minor child, spouse or HUF of which he is a member, should not be owner of a house at the place where he ordinarily resides or performs his duties; or he should not be owner of any house at any other place, the income therefrom is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) (i.e., income from self-occupied house property).
Amount of deduction – The deduction admissible shall be the lower of the following: -
(i) house rent incurred in excess of 10% of “Total Income”; or
(ii) Amount at 25% of “total income”; or
(iii) Rs. 2000 per month.
Note:
1.      The term “Total income” means total income after allowing all deductions expect the one provided under this section itself.
2.      In case of salried assessee who is in receipt of HRA from the employer, no deduction u/s 80GG is admissible. However, they can claim deduction u/s 10(13A) of the Income Tax Act-1961.



Investment of Rs. 1 crore in bonds specified under section 54EC- Whether Possible?

AND THE CONTROVERSY CONTINUES...

Investment of Rs. 1 crore in bonds specified under section 54EC- Whether Possible:

Limit of investment for the purposes of section 54EC is Rs. 50 lakhs in a financial year. Investment within 06 months is the investment for that financial year in which transfer has taken place. But, any subsequent investment is to be considered as part of the investment of financial year in which transfer has taken place. Therefore, even if the assessee manages his affairs in such a way that investment of Rs. 50 lakh is made in one financial year and investment of another Rs. 50 lakh is made in another financial year but within the period of six months from date of transfer then also deduction under section 54EC cannot exceed Rs. 50 lakhs.- Vide Asstt. CIT v. Raj Kumar Jain & Sons (HUF) (2012) 48 (II) ITCL 2 (JP-Trib)