Real estate deals: CBDT floats draft income computation standard

FOR PUBLIC CONSULTATION

THE CENTRAL Board of Direct Taxes (CBDT) on Thursday released the draft Income Computation and Disclosure Standard (ICDS) on real estate transactions for public consultation. The proposed ICDS will be applicable for determination of income from all forms of transactions in real estate, including land and buildings.

The draft ICDS doesn't mandate obtaining all critical approvals for revenue recognition after the Real Estate (Regulation and Development) Act, 2016, (RERA), came into effect. It also proposes recognition of transferable development rights (TDR) at the fair value against fair market value or net book value as per the guidance note prepared by the Institute of Chartered Accountants of India (ICAI).

"The transactions will include sale of plots of land (including long-term sale type leases) with or without any developments, development and sale of residential and commercial units, row houses, independent houses, with or without an undivided share in land," Rakesh Bhargava, director, Taxmann.com said.

He added that acquisition, utilisation and transfer of development rights, redevelopment of existing buildings and structures and joint development agreements for any of the above activities will also be included.

Further, the proposed ICDS doesawaywiththeceilingforrevenue recognition based on stage of completion determined with reference to the project cost incurred. The draft is based on the guidance note issued on real estate transactions issued by ICAI withcertainmodificationsassuggested by the government's ICDS committee. "The specific ICDS on real estate transactions shall be a welcome move as it will bring clarityandcertaintyinapplication of provisions of ICDS and computation of taxable income to the sector. It can be expected that in nearfutureicdswillbeissuedfor other specific sectors where applicationoficdsiii&ivonincome is unclear," Vikas Gupta, partner, Nangia & Co, said.

The draft ICDS has made changes in five areas compared to theguidancenote.theseareasare definition of project and project cost,revenuerecognition,application of percentage of completion methodforrealestateprojectsand transferable development rights (TDRS). "Most of the deviations from the guidance note issued by the ICAI will have the effect of acceleratingrevenuerecognitionfor tax purposes. Specifically, the change requiring recording TDRS at fair value will create tax incidence on unrealised revenues," Abhishek Goenka, partner and leaderofdirecttaxatpwc,said.fe