RERA: IMPORTANCE OF YEAR END RECONCILIATION UNDER VARIOUS STATUES

Wishing the members and readers abundance in all financial endeavours, opportunities for wealth creation and wealth preservation. Greater financial peace of mind and contentment. May all your financial wishes come true!

We all have started a new financial year 2023-24 and in the process of closure of books of accounts for the previous financial 2022-23. Financial year end closure compliances refer to the various tasks and activities that need to be completed by an entity/person at the end or after its financial year to comply with legal, regulatory, accounting requirements and to report to all stake holders.

The reporting being specific to industry, the regulators constantly monitoring the developments of the industry and the eco-system. Real estate is not an exception to it. Post RERA all the stakeholders of the real estate cognizant about the RERA registration, periodical updates, funds utilisation reporting, approval of modification of plans and specifications, approval for change of promoters in the project, compliances to the advertisement and adherence to terms of the agreement of sale.

RERA being the new statute and regulators are notifying the various regulations, notifications etc based on their experiences, on government and stakeholders demand depending on the situation or circumstances that spew from time to time.

In this article, we would like to bring the important data points/details to be considered by the Real Estate entities (promoters of the real estate projects) considering the various aspects as mandated under RERA. The promoters and professionals shall consider and comply with the Regulatory Compliances to mitigate the risks –

1. Prior Registration of the project –

1. 1. Section 3(1) of the RERA Act 2016 mandates the prior registration of the real estate project (building or plotted) before sale, marketing, invitation, collection of advances –

1. 1. 1. It is important for the professionals to consider while verification, reporting and certification, whether the promoter has advertised or collected money prior to registration of the project with the RERA Authorities. The same can be verified by looking at the bank account receipt, agreement of sale entered.

1. 1. 2. The authorities have levied penalty for advertisement or collection of money prior to before RERA registration.

1. 1. 3. Further the promoter might have allotted the unit against the advance / borrowing. If so, further emphasis should be made and verify the transaction to satisfy and comply with Section 3(1)

Eg., Balance Sheet of 31st Mar 2022 showing under Borrowings or current liabilities. During 2022- 23, unit is allotted against such borrowings.

2. Financial management under RERA – Section 4(2)(L)(D) of the RERA Act 2016 mandates the promoter to deposit 70% of the amount realised from the allottees to the project RERA designated bank account from time to time –

1. 1. Verify the total sales register or collection register.

1. 2. Verify amount credited to project RERA designated bank account (RERA designated bank account can be verified by visiting https://rera.karnataka.gov.in/viewAllProjects)

1. 3. Reconcile the collection and 70 % deposit. Any variances, collect the reasons for future references

1. 4. Verify whether the promoter have collected the professional certificate of Engineer, Architect and Chartered Accountant Certificate for withdrawal of funds from the project RERA designated bank account from time to time. Excess withdrawal at any point of time shall be recorded and reported,

1. 5. In case of Joint Development agreement, collect the details of units sold and amount realised by the landowner under Area Sharing arrangements, whether the 70 % of the realisation of landowner units is deposited into project RERA designated bank account. If not let the developer communicate and collect necessary undertaking and documents to protect from penal consequences (REFER RERA Bank Account directions 2020 issued by K RERA)

3. Compliance checklist and Reconciliation under RERA: preparation of reconciliation statements to ensure accuracy and completeness, as well as reconciling any discrepancies or differences between reports submitted with various stakeholders –

Sl   Stakeholder/s                      Reconciliation items No

RERA Authority –

1. Compliance with

Ensuring compliance with various regulatory requirements, such as

1. filing of quarterly updates –

2. annual audit annual reports

3. application for extension of end date – Section 6

4. further extension of end date of the project –

Section 7

5. Reporting    and   modification    of    plan    and specifications in the project – Section 14

Regulatory Requirements: f.         Advertisement guidelines – Section 11 and

Section 12

1. 7. Honouring the orders passed by the Authority or Adjudication officer for the complaints filed under Section 31

1. 8. Engaging and Payment of commission or brokerage only to

Rera Registered Agents

1. 1. Following the agreement of sale notified by Rera Authorities

2. Bankers – Lenders

Inventory and receivable statements to arrive at Drawing Power. This document should be tally and reconcile with the reports submitted to Rera Authorities –

1. Total number of Sold units / inventories in the project.

2. Communication to the lenders for NOC from the lenders for the units sold and agreements entered.

3. Receivables from the Sold units Vis-à-vis books of accounts

4. Unsold inventory as per books of accounts and average value of the receivables from unsold inventory to cover the balance / outstanding loans or borrowings.

5. Status of construction progress of the project.

3. GST

1. Percentage of completion of the project

2. Total amount received and GST discharged on the amount received or due.

3. Reporting of RCM transaction and discharge of liability (Legal Fees, Development rights, transport expenses etc)

4. Availing the eligible Input Tax credit

5. Satisfaction of 80 % criteria of registered GST purchases

6. Discharge of unregistered GST purchases if any or lower than 80 % criteria

7. Reversal of ineligible GST Input Tax Credits

8. Reconciliation and allocation of GST incase of Mixed Development Project (Residential and Commercial)

1. Reporting of occupancy or completion certificate (the gst officers are collecting the data from the Rera portal etc)

TDS deducted by the

1. 1. Reconcile the total receipt of money from the allottees.

1. 2. Check 26 AS whether 1 % has been credited against the receipt from the customers/allottees.

4. buyers @ 1 % U/s. 194 IA c.       If not, communicate the same to the allottees

of Income Tax Act 1961

and insist them to remit and share the details.

d.     This will helps the revenue reconciliation vis-à- vis TDS Credits

Inventory Valuation –

5. stock lying at the site or godown

a. Available or unsold inventory shall reconcile with Rera March quarter CA certificate with the books of accounts

6. Revenue Reconciliation

1. Recognition of revenue as per Accounting Standard and Tax Standards and reconciliation with the data as provided to RERA –

i.e., realisation of money from the allottees vis-à-vis revenue recoginsed based on % of completion of the project development work, realisation of money from the allottees vis-à-vis revenue to be recognised.

Prior to Rera income or gst authorities relying on the data as

provided by the promoters. Post

Rera, the data is available in avpublic domain or can be collected from the Rera Authorities.

Provision for the delay compensation (delay in delivery of the unit to the allotees –

7. a.      Based on Terms f the Agreement

2. Based on the orders of the Authority or Adjudicating officer

1. Provision of expenses for the delay compensation payable to the allottees as per the terms of the agreement and as per the RERA Act 2016 (SBI MCLR + 2% interest) – Section 13 read with K RERA Rules 8A

2. Applicable GST payable compensation payable on such delayed delivery of the project

3. TDS by the promoter on such provision of expenses

Management Information

8. System – MIS to Investors etc

1. During the financial year, there

may be instances of sharing MIS information with the investors etc.,

2. It is advisable to reconcile the same with the data as reported with Rera and also as per books of accounts of the promoter.

Sample Checklists –

(Similar checklists can be prepared for each of the compliance under Rera and capture the details)

Registration Checklist

(in case project registered during the FY 2022-23

Estimated cost of Land As per RERA Registration

Estimated cost of Construction As per RERA Registration

Project RERA Designated Bank Account

Number of Inventory

Project RERA Registration Number and Project Name

Rs. XXXX                  Rs. XXXX

1. 1. Bank Name

1. 2. Account Number

1. 3. IFSC Code

XXX Units

–

Due Date of Filing

Actual Filing Date

Architect Certificate – % of Completion

Engineer Certificate – Amount

CA Certificate –

Construction cost incurred

Total Cost Incurred

Total % of Completion

Amount Eligible to withdraw

Actual withdrawn

Balance Available to withdraw

Observation / Remarks

–

Advertisement

Mode

Print – Hoarding, Newspaper, Social media, website, FM, Calls etc

RERA Registration Number as per RERA Guidelines

Remarks / Observation