CBDT invites comments from stakeholders on Draft Income Computation and Disclosure Standards on Real Estate Transactions by 26th May, 2017.
The Central Board of Direct Taxes (CBDT) today released the draft of the Income Computation and Disclosure Standard on Real estate Transactions.
The draft ICDS submitted by the committee is based on the Guidance Note issued on Real Estate Transactions issued by Institute of Chartered Accountants of India (ICAI). For the purposes of providing uniformity and certainty and harmonising the same with provisions of the Act, the committee suggested certain changes in draft ICDS.
The Central Board of Direct Taxes (CBDT) invites comments from stakeholders on the draft ICDS on Real Estate Transactions, which may be submitted to Director TPL-III by e-mail at dirtpl3@nic.in by 26th May, 2017.
Section 145(2) of the Income-tax Act, 1961 (‘the Act’) provides that the Central Government may notify Income Computation and Disclosure Standards (ICDS) for any class of assessees or for any class of income. Accordingly, Central Government notified 10 ICDS vide Notification No. S.O. 3079 (E) dated 29th September, 2016. These ICDS inter-alia contain provisions relating to valuation of inventory; construction contracts; effects in changes of foreign exchange rates, borrowing costs etc. These ICDS are applicable from assessment year 2017-18 (previous year 2016-17) in respect of specified assessees for computation of income under the head “Profits and gains of business or profession” or “Income from other sources”.
The Finance Minister had constituted a Committee comprising of experts from accounting field, departmental officers and representatives from the Institute of Chartered Accountants of India (ICAI) to suggest the areas in respect of which further ICDS may be notified under the Act.
The Key features of the Draft are the following
The Real Estate Project revenue and project cost shall be recognised as revenue and cost respectively by reference to the stage of completion of the project on the last date of the previous year for projects where the economic substance is similar to construction contracts.
In case of Real Estate Projects, Percentage of completion method would be applicable.
Direct purchase, Development and construction of built-up area and Giving up of rights over existing structures or open land are treated as Transferable Development Rights.
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 shall be recorded at fair value of the development rights so acquired.
When development rights are utilised in a real estate project by a person, the cost of acquisition shall be added to the project costs.
On sale or Transfer of development rights, the revenue shall be recognised when both fulfills the following conditions, i.e, (a) title to the development rights is transferred to the buyer; and (b) it is reasonable to expect that the revenue will be ultimately collected.
Read the full text of the draft below.
