Gujarat Real Estate Regulatory Authority (RERA)
Chief town Planner and Valuation Office, Sector 10‐A
Gandhinagar
Circular No. 2/2017
No. GujRERA/CIR/SEC24/0717
Date – 29th July, 2017
Subject: Clarification on CA Certificate
Whereas, under section 25 of the Real Estate (Regulation and Development) Act, 2016 (RERA), the Chairperson GujaratRERA is vested with the powers of general superintendence and directions in the conduct of the affairs of the Authority.
Whereas the second proviso to Section 4(2)(l)(D) of RERA provides that the amounts from the separate account shall be withdrawn by the promoter after it is certified by an engineer, an architect and a chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project.
Whereas, the third proviso to section 4(2)(l)(D) of RERA further provides that the promoter shall get his accounts audited within six months after the end of every financial year by a chartered accountant in practice, and shall produce a statement of accounts duly certified and signed by such chartered accountant and it shall be verified during the audit that the amounts collected for a particular project have been utilised for the project and the withdrawal has been in compliance with the proportion to the percentage of completion of the project.
Whereas Rule 5 of the Gujarat Real Estate (Regulation and Development (General) Rules, 2017 prescribes the withdrawal aspects of the amounts deposited in a separate account under Section 4(2)(l)(D) of RERA. The said Rules require that for the purpose of withdrawal of amounts deposited in the Designated Bank Account in respect of New Project and Ongoing Project, the promoter shall have the following three certificates :
(i) Certificate from the project Architect in Form 1 certifying the percentage of completion of construction work of each of the tasks/activity of the building wing of the project;
(ii) Certificate from the Engineer in Form 2 for the actual cost incurred on the construction work of each of the building/wing of the project; and
(iii) Certificate from a practicing Chartered Accountant in practice other than the statutory auditor of the Promoter in Form 3, for the cost incurred on construction cost and the land cost. The Chartered Accountant in practice is also required to certify the proportion of the cost incurred on construction and land cost to the total estimated cost of the project. The total estimated cost of the project multiplied by such proportion shall determine the maximum amount which can be withdrawn by the promoter from the Separate Bank Account. The promoter shall be required to follow the aforesaid procedure for every withdrawal from the Separate Bank Account till the occupancy certificate in respect of the project is obtained. On receipt of completion certificate in respect of the project, the entire balance amount lying in the Separate Bank Account can be withdrawn by the promoter.
Whereas Circular 1/2017 of the Gujarat Real Estate Regulatory Authority prescribes the form of the certificates to be issued by the project Architect, project Engineer, Chartered Accountant for getting release of money from the Separate Bank Account:
(a) Certificate from the project Architect in Form 1.
(b) Certificate from the project Engineer in Form 2
(c) Certificate from the Chartered Accountant in Form 3
(d) Certificate from the project Architect on completion of each building /wing of the real estate project in Form 4
(e) Whereas that the annual report on statement of accounts shall be in the prescribed Form 5 (issued in accordance with the third proviso to section 4(2)(l)(D) of RERA which shall be duly certified and signed by the chartered accountant who is the statutory auditor of the Promoter’s entreprise.
There are various terms which are used in the certificates to be issued by Chartered Accountant whose meaning and interpretations need to be clarified in order to have uniformity in the basis on which the certificates can be issued by Chartered Accountants without any ambiguity for each of the projects being registered with GujaratRERA.
Therefore, for the purpose of RERA, the rules and regulations there under:
To determine the fair market value of the Acquisition Cost of Land or Development Rights or Lease Rights in the Real Estate Project, the Acquisition Cost shall be the “Indexed Cost of Acquisition”. Indexed Cost of Acquisition shall mean an amount which bears to the cost of acquisition the same proportion as cost inflation Index for the year in which the land or Development Rights or Lease Rights in the Real Estate Project is registered or the year in which the first commencement Certificates is issued in respect of such Land, whichever is earlier, bears to the Cost inflation Index for the first year
In which such Land or Development Rights or Lease Right in the Real Estate project was owed or held by the Developer. Where the land or Development Rights or Lease Rights became property of the Developer or became available to the Developer before 1 st day of April, 2001, the cost of Acquisition would means the ASR value of such land or Development rights or Lease Rights as on 1 st day of April, 2001 and First year in which such Land or Development Rights or Lease Rights in the Real Estate Project is owned or held by the Developer shall be take as 1 st April, 2001. “ Cost Inflation Index” , in relation to a year, means such Index as the Central Government may, by notification in the Official Gazette, specify, in this behalf under Section 48 of the Income Tax Act.
The Acquisition Cost shall also include the amount of interest incurred on the borrowing done specifically for purchases of Land, or Acquiring Development Rights or Lease Rights.
Cost under Rehabilitation scheme or construction cost of rehabilitation building shall include cost incurred for construction of construction area, which is to be handed over to
(i) Slum dwellers under slum rehabilitation scheme.
(ii) Tenants under redevelopment of tenanted properties.
(iii) Apartment owners of the building which is under redevelopment and who are to be provided with the alternative accommodation.
(iv) Government or concessionaire in Public Private Partnership project.
(v) Appropriate Authority under various schemes under Development Regulations.
All amounts payable to slum dwellers, tenants, apartment owners; or appropriate authority or government or concessionaire which are not refundable and are incurred as cost and expenses of such rehabilitation scheme, shall be allowed as part of Land Cost under clause 1(i)(f)(iii) of 1(i)(f)(iv) of the Form 3. For example, maintenance deposits, corpus amount, concession premium or fees, shifting charges to name a few.
The amount of interest incurred on the borrowing done specifically for construction of rehabilitation component in rehabilitation scheme shall be included in the interest payable to financial institution etc. under the head of Land Cost. (under Clause 1(i)(a) of form 3.
The increase in construction cost due to execution of extra/additional items as certified by the engineer in Table C of the Form 2 shall be allowed to be included in the on site expenditure for development of entire site etc. Under 1(ii)(a)(iii) of form 3 of Gujarat RERA.
The expression “Amount withdrawn till the date of the certificate as per the Books of Accounts and Bank Statement” appearing at clause 7 of Form 3 of GujaratRERA means the amounts withdrawn from the Separate Bank Account as per the Books of Accounts and Bank statement of that Separate Bank Account.
The Promoter to deposit the Pass Through Charges (amount collected for and on behalf of Legal Entity or Apex Bode or any statutory authority or local body) should be deposited preferably in a designated bank account opened just for the purpose of depositing such Pass Through Charges or in any other bank account of the promoter and should not be deposited in the separate bank account. However, Promoter shall be required to give account of the monies collected as Pass Through Charges to the Legal Entity or Apex Body.
The indirect taxes collected by the Promoter from the Allottees is in the nature of GST/Service Tax/VAT etc can also be deposited in a bank account, other than the Separate Bank Account and shall be dealt with as per the provisions of the statute governing such indirect taxes.
It may be noted that Income tax paid by the promoters of a Real Estate Project, shall not be allowed to be claimed as cost of the Real Estate Project.
The Separate Account opened in accordance with the provisions of section 4(2)(l)(D) of RERA, shall be a no lien account and withdrawal from such separate account shall always be in accordance with the provisions of RERA, Rules, Regulations and circulars issued by GujaratRERA from time to time. The excess monies lying in the Separate Bank Account can be put in fixed deposits with the bank operating the Separate Bank Account and which has to be a no lien Fixed Deposit and no loan can be obtained against or on such Fixed Deposit nor any charge can be created on such Fixed Deposit.
The Chartered Accountant shall verify and certify that 70% of the amount collected from Allottees (other than Pass Through Charges and Indirect Taxes) are deposited in the separate account. In case of ongoing project, where estimated cost to complete the project is higher than estimated value of sales revenue, the chartered accountant shall verify and certify that 100% of the amount collected from the Allottees (other than Pass through Charges and Indirect Taxes) after the date of registration of the project are deposited in the separate account.
In case of fixed deposit being made from the monies lying in the separate account, then the chartered accountant shall verify that there is no lien or charge on such fixed deposit. The promoter and/or chartered accountant shall obtain the no lien/ charge certificate in respect to such fixed deposit., from the bank once every there months.
The Authority recommends that the amount withdrawn from the separate account should preferably be utilised for the purpose of completion of the Real Estate Projects. However, there is no end use restriction on the amount which is withdrawn from the separate account, in accordance with the provisions of the Act, Rules, Regulations and circulars.
Cancellation amount(s), if any, to be paid by the Promoter to the Allottees on cancellation of booking/ allotment of the Apartment, should be treated as cost incurred for the project and the same cane be withdrawn from the Separate Bank Account, to the extent of 70% of the amounts to be paid to the Allottees on cancellation of the booking/allotment, since only 70% of the amounts realised from the Allottee would have been deposited in the Separate bank Account.
With respect to an Ongoing Project, at the time of registration of the Real Estate Project, the Estimated Land Cost and Development Cost/ Cost of Construction to be certified as per Form 3 shall be for the cost of the real estate project, since its inception and not the balance Estimated Land Cost and Development Cost/Cost of Construction to complete the project. That is, the total incurred Cost of the Real Estate Project shall be the aggregate of the incurred Land Cost and Development Cost /Cost of Construction of the project, since its inception till the date of the issuance of the certificate and the estimated Land Cost and Development Cost/Cost of Construction shall be for the entire project from the inception till completion. Also in respect to an Ongoing Project, in the first certificate to be issued by a Chartered Accountant at the time of registration and for the first withdrawal post registration, at clause 7 of the Form 3, the “Amount withdrawn till date of this certificate as per Books of Accounts and Bank Statement” shall be either “100% of the amount received towards consideration of the sale of apartment of the Real Estate Project till date of Registration” or “amount of project cost incurred and paid as reflected at clause number 3 of the certificate of chartered accountant issued (Form no.3) at the time to registration”, whoever is lower.
The third proviso ot Section 4(2)(l)(d) RERA read with Circular 1 required the promoter to get his accounts audited within six months after the end of every financial year by the statutory auditor of the Promoter’s enterprise. And produce report on statement of accounts on project fund utilisation and withdrawal by Promoter in Form-5 in accordance with General Regulation 4 of GujaratRERA . Since the report is to be prepared under third proviso to the section 4(2)(l)(d) of RERA., the said certificate is only in respect of the amount to be deposited and withdrawn from the Separate Bank Account. The Chartered Accountant shall further certify that the withdrawal from the Separate Bank Account of the said project has been in accordance with the proportion to the percentage of completion of the project.
In the event of Development of the Real Estate Project being implemented by promoter and Co promoters, the agreement between the promoter and each of the co-promoters shall clearly lay down the entity which is principally or primarily responsible for completion of the real estate project. In case of shared responsibility between the promoter and co-promoters for achieving completion of the project, the agreement shall clearly, lay down the responsibility assumed by promoter and each of the co-promoter. The copy of such agreement or arrangement is required to be uploaded at the time of registration of the Real Estate Project.
Since projects are in the processed of getting registered or would have applied for registration with Gujarat RERA before issuance of this Circular these clarification points may not have been factored in.
However, for such projects, Gujarat RERA would expect estimated costs to be worked out, and certificates to be issued and submitted to the Authority. In subsequent certificates and while reporting incurred and paid amount in the quarterly update, the above-mentioned aspects should be taken in to account.
This circular will be effective from the date RERA has come into effect.
By the approval of Chairperson GujaratRERA.
(K. L. BACHANI)
Secretary GujRERA
Follow for daily updates: