Taxation of real estate developers

1810 views 7 replies

I have client who is in business of constructing apartments and selling it. As per institute guidance note we can recognise revenue only when the right & ownership of the flats transferred to the buyer, so if assumed the right & ownership will be transferred only after full completion.

Please provide me the tax implication for the same

Thanks & Regards

Replies (7)

Dear Himanshu,

In the Books, revenue is recognized as per AS-7 & the same treatment is acceptable in Income tax also.....

I guess AS - 7 is not applicable to real estate developers as nor the expenses nor the revenue is known at the time of taking up a project.

However it is very common that developers estimate profit @ of some % of advances received against sale or of work completed. Generally the % varies from 8 - 12% and the same has been accepted by the Income Tax department in one of my clients case.

Dear Amir

A separate Guidance note is issued by ICAI to recognise revenue of Real Estate Developers 

the file is attached here with

Mr Maheswari

Dear sir,

Can you say me the allowability of interest if   a term loan has been raised regarding above matter

If term loan is taken by the assessee and if the project for which term loan is taken is the only project then the same will be added to the Work in Progress account and is allowable expenditure.

Since the term loan would probably be taken on the construction cost the same will be added to the work in progress

However in the year of completion compliance with Section 43B needs also to be taken care of.

Thank You Sir

Very useful explanation Mr.Aditya........ Thank u...............:)

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