Accounting for real estate agent (in case of trading)

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Arun Kumar Garg

Practicing CA

58 Points Joined February 2010

Frieds

We need your help in following matter:

One of our client is a real estate agent, he gets commission / brokerage from clients.Here he charges service tax and TDS is deducted on commission income @ 10%.

Now he has started ne type of business, here, he will make an agreement with developers for underwriting flats (For e,g, 50 flats @ Rs. 30 lakh per flat). He has to sell these flats at minimum price (Rs. 30 Lakh) to customers within specified time & if he can not do this, he has to buy these flats. If he sells any flat at price higher than fixed limit (E.G. 32 lakhs instead of 30 lakhs), he will get this amount (Rs. 2 lakh). In addition to this my client will also get 2% of sale value (30 lakhs) also as commission.

End customer will pay Rs. 32 lakhs to developer and developer will pay rs. 2 lakh to my client, alongwith commission amount of 2%. Sale deed will be executed between developer and end customer only.

Please help in this matter as:

TDS will be deducted by developer on hich amount.

Service Tax will be attracted on which amount

What will be position, if my client shows purchase of Rs. 30 laks and sale of Rs. 32 lakhs.

Please help.

Regards

CA. Arun Kumar Garg

Replies (2)

Arun Kumar Garg

Practicing CA

58 Points Joined February 2010

Friends

Please help

give your suggessions, in case you are not sure, even it will help us a lot.

Thanks in advance

Chirantan

Partner

34 Points Joined October 2008

Hi Arun, what i am going to state is my opinion according to my judgment. I would like to discuss the last point first. The company is selling the flats as an agent and not as the owner. It is somewhat similar to "Underwriting of shares". Purchase will be complete if the ownership and the risk associated with it is transferred. In this case the ownership is dependent on a condition and non fulfillment only will lead to purchase of that flat. According to me showing it as purchase and sale will not be feasible.

TDS should be deducted on the commission amount which is 2% in your case. The additional payment of over 30L will also be covered under the word commission, as the word means any receipt on account of any service representing or on behalf of other. Thus TDS will also be required to be deducted on the additional payment as well u/s194H.

With respect to Service Tax, it is to be charged on the gross value. The gross value in your case according to me will be the amount raised in the invoice... = 2%+Additional amount over 30L.

This is my opinion in the light of the above case.