MARCH 2019

The Recent Updates section of Infini Evolve is to give a quick info on the recent changes that are happening in the areas of GST, Companies Act, FEMA, Income Tax and any other law/ regulation. In this section we would like to take you through some of the key developments that happened in the Month of February 2019.

GST Updates

Shift in Manner of Utilisation of Credit!

Credit of IGST to be utilised completely before the utilisation of CGST, SGST and UTGST Credit.

Major Move in Real Estate Industry

GST on Affordable Housing slashed to 1% without the benefit of ITC and in other cases to 5%

Companies Act Updates

Prove your an active company!

E-Form ACTIVE to be filed before 25th April 2019 by all companies incorporated before 31.12.2017

Does your Company owe money to Small and Medium Enterprises?

MSME Form I to be filed within 30 days of Forms being made available for the same.

Who actually owns and influences the Corporate?

Mandatory identification and filing of data about Significant Beneficial Owners as per the Significant Beneficial Owners Amendment Rules 2019 published on 8th February 2019 in Form No BEN-1.

FEMA Updates

New and Friendly ECB Framework

• • Uniform Borrowing Limit of Rs 750 million across all tenors- Sector wise limits taken off.
• • Broadened definition of eligible borrowers by including all entities eligible to received FDI.

ECB- End use relaxation for Insolvency Payments

ECB proceeds allowed to be used for repaying rupee loans to vendor under insolvency process through approval route.

Income Tax Updates

Not yet linked your PAN to you bank accounts? It could affect your Refunds!

The Income Tax Department has intimated that only e-refunds would be issued from March 1st 2019, hence its essential to link the PAN of an Assessee with the Bank Account get the refund money credited to the Bank Account directly, swiftly and securely.

E-Commerce is one of the fastest growing industries in India and is expected to become the 2nd Largest e-commerce market after the US by 2034. There was a point when people were excited about shopping going to the store of their choice, experiencing the product and deciding to buy the same. The trend has changed to a great extent now. Deep Discounts, Huge Cash Backs, Variety of Brands, Flexible Payment Options, Easy Returns etc., have lured customers to choose online shopping over the traditional model. With every day improvement in technology and customers owning smart phones, it has become a lifestyle change to purchase anything and everything online! This model has affected a lot of local small and medium vendors owning brick and mortar stores, who are yet to cope up with technology advancements and huge investment demands associated with it.

Since e-commerce was popular in the US and other countries, to promote the development of this Sector, Government Liberalized Foreign Investments by allowing 100% FDI for Marketplace model of e-commerce under Foreign Exchange Management Act.

In this Article, let us understand the recent changes brought into by the Department of Industrial Policy and Promotion (DIPP) with respect to operations of e-commerce Market Place entities, which are considered by the respective industry giants to be regressive in nature.

The Top Players in the e-commerce sector currently are Flipkart (acquired by Walmart), Amazon, Paytm, ShopClues, Snapdeal, e-bay etc., There were concerns raised by small vendors and various Trade Associations that the foreign owned e-commerce operators were involved in unfair trade practices by discriminating between vendors and controlling most of the sale through their related/controlled entities. These representations led the Central Government to re-visit the norms of operations. Such changes were prescribed by the DIPP by way of Press Note No.2 (2018 series).

REGULATIONS for e-Commerce Operators has been prescribed under the Consolidated FDI Policy 2017 (effective from August 28,2017) as amended by the Press Note No.2 (2018 Series) as follows:

DEFINITIONS:

E-commerce	Buying and Selling of goods and services including digital products over digital & electronic network
e-commerce entity	• A Company incorporated under Companies Act 1956/2013 • A foreign Company (as defined under Companies Act 2013) • Office, branch or agency in India owned or controlled by a person resident outside India conducting e-commerce business

FDI LIMITS:

Sector/Activity	Meaning	% of Equity/FDI Cap	Entry Route
Market Place model of E-Commerce Activities	Providing of an Information Technology Platform by an e-commerce entity on a digital or electronic network to act as a facilitator between buyer and seller	100%	Automatic
Inventory Based model of E-Commerce	Inventory of goods and services are owned by the e-commerce entity and is sold to consumers directly.	Not allowed	Not allowed

Note: E-Commerce entities can engage only in B2B (Business to Business) e-commerce and not in B2C (Business to Consumer) e-commerce.

GUIDELINES :

DO’s	DON’Ts
Market Place e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.	Should not exercise ownership or control over the inventory i.e goods purported to be sold. Inventory of a Vendor will be deemed be controlled by marketplace e-commerce entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies.
May provide support services to sellers in respect of warehousing, logistics, order fulfillment, call Centre, payment collection and other services	An entity having equity participation by e-commerce market place entities or its group companies, or having control on its inventory as specified above, will not be permitted to sell its products on the platform run by such marketplace entity.
Goods made available for sale electronically on website should clearly provide name, address, and other contact details of the seller. Post Sales, delivery of goods and customer satisfaction is the responsibility of the seller. Warranty/Guarantee of goods and services sold will be the responsibility of the seller.	E-Commerce entities should not directly or indirectly influence the sale price of goods or services.
Payments for sale may be facilitated by the e-commerce entity in conformity with Reserve Bank of India.	Service to any vendor on such terms which are not made available to other vendors in similar circumstances will be deemed unfair and discriminatory.
Service to be provided to vendors on the platform at arm’s length price and in a fair and non-discriminatory manner. Cash back provided should also be fair and non-discriminatory.	e-commerce marketplace entity not to mandate any seller to sell any product exclusively on its platform alone.
Guidelines on cash and carry wholesale trading as per Consolidated FDI Policy will apply to B2B e-commerce too.
Need to furnish a Certificate along with a report of Statutory Auditor to RBI confirming compliance of guidelines by 30th September every year of the preceding financial year.

KEY IMPACT ON ACCOUNT OF REVISED GUIDELINES TAKING EFFECT FROM 1st FEB 2019

• Major Hit e-commerce companies like Amazon or Flipkart who were selling products supplied by affiliated / group companies
• Could have an impact on exclusive deals which were happening through partnerships in the past like those with smartphone brands like ASUS, One Plus etc.,
• No Transaction with Related/Associated Entities
• No preferential treatment/discrimination for chosen vendors henceforth.
• No Vendor registered with the portal to have more than 25% of its purchases from e-commerce marketplace entity or its associated entities.

CONCLUSION :

Though this has been a move to combat unethical trade practices by large market players, the overall move is being considered to be regressive and lacking transparency in policy making. The Big players feel that this creates unpredictability and could have a negative impact on the growth of online retail in India. It is also felt that the measures have been taken without any consultation with the key players in the industry and are akin to changing the rules in the middle of a game. Smaller players such as ShopClues and Snapdeal seem to welcome the move as it would provide a level-playing field for all. Overall the changes to e-commerce norms have drawn a mixed reaction. We will have to wait and watch the long-term impact / adjustment this would create with respect to the growth of the industry.

All of us would have read much about unearthing frauds, scams happening all over the world and if the scam involved a corporate, definitely we would have come across the term, ‘Complex Ownership Structure’. And none of the articles or news papers could have possibly explained how complex the ownership structure was, as it might not be possible in many cases to detail the multilevel ownership structure that was used to commit the fraud/scams especially if it involves investments in/by foreign entities from other parts of the world where disclosure of ownership is not made public. “Almost every economic crime involves the misuse of corporate entities” – Quoted in “Behind the Corporate veil” published by OECD,2001. Money Laundering, Corruption, Insider Trading, Tax Fraud and other scams are happening through the complex ownership structures and offshore corporate entities. This misuse of corporate entities for illicit purpose is happening all over the globe and not limited to any particular country. To identify and to take necessary measures to avoid such frauds, it becomes important that the individual who is operating behind the corporate structure is made known to the public. The natural person(s) who ultimately owns or controls the entity is called the Ultimate or Significant Beneficial Owner (SBO) of the entity. The Global Anti Money Laundering Regulations requires every government to take measures to prevent the unlawful use of Corporates by making sure that the information of SBO of every company incorporated in the country is made available.

In India, though the information of ownership of any company is made public, in cases of companies held by body corporate and especially where investment is made by foreign entities, the information that is available to the government on the ultimate beneficial owner is still limited. Though the requirements to disclose the SBO under the Companies Act, 2013 was there in place from the beginning, the identification of SBO and the applicability of the same to any company was not made clear until the amendment brought in through Companies (Amendment) act,2017 w.e.f 13th June, 2018 and the introduction of new rule called Companies (Significant Beneficial Owners) Rules,2018. The said rules were further amended to provide much clarity on how to identify the owners in multilevel corporate structure through the Companies (Significant Beneficial Owners) Amendment rules, 2019 brought in with effect from 8th February 2019.

SIGNIFICANT BENEFICIAL OWNERS AS PER THE COMPANIES (SIGNIFICANT BENEFICIAL OWNERS) AMENDMENT RULES, 2019

Significant Beneficial Owner (SBO) is an INDIVIDUAL who individually or together through one or more persons or trust, possesses any one or more of the following rights in the company:

• Holds indirectly (or including his direct holding) 10% or more of the Shares
• Holds indirectly (or including his direct holding) 10% or more of the voting rights
• Holds indirectly (or including his direct holding) 10% or more of the rights to receive or participate in the total distributable dividend in a financial year
• Has rights to exercise Significant influence or Control in any manner other than through his direct holdings alone

If an individual does not hold indirectly any right or entitlement under the first three clauses, then he will not be considered as significant beneficial owner under these clauses, i.e, if the individual holds more than 10% of the shares in a company directly and indirectly he had no rights then he will not be deemed to be significant beneficial owner under the first three clauses.

What is indirect holding of Shares and when will an Individual be considered to hold shares indirectly in a Company?

In cases, where the shareholder of the Company is Non- Individual, an Individual will be considered to hold shares indirectly in the Company in the following cases:

• 1. If the member is a body corporate (whether registered in India or abroad)
  • a. If an individual holds majority stake in the body corporate (Majority stake means where an individual holds more than 50% of the shares of the Body Corporate or holds more than 50% of the voting rights of the body corporate or has the right to receive or participate in more than 50% of the total distributable dividends of the body corporate) or
  • b. If an individual holds majority stake in the ultimate holding company (whether incorporated in India or abroad) of the body corporate
• 2. If the member is a HUF, the individual is the Karta of the HUF
• 3. If the member is a partnership firm
  • a. The Individual is a partner or
  • b. Holds majority stake in a body corporate which is a partner of the partnership firm or
  • c. Holds majority stake in the ultimate holding company of the body corporate which is a partner of the firm
• 4. If the member is a trust
  • a. The individual is a trustee in case of discretionary or charitable trust or
  • b. Beneficiary in case of specific trust
  • c. The author or settler in case of revocable trust
• 5. If the member is a pooled investment vehicle or an entity controlled by pooled investment vehicle
  • a. The individual is a general partner or
  • b. An investment manager or
  • c. CEO where the investment manager is a body corporate or a Partnership firm

For better understanding, the above clauses are illustrated as follows:

Illustration 1: The Shareholders of M/s ABC Private Limited Company is M/s DEF Private Limited – 99% of Shares and Mr. X – 1% of Shares. In this case, we need to identify the individual behind M/s DEF Private Limited, Let’s Say Mr.Y holds more than 50% of M/s DEF, then he becomes the SBO of 99% shares held in the name of M/s DEF Private Limited.

Illustration 2: The Shareholders of M/s ABC Private Limited Company is M/s DEF Private Limited – 89% of Shares and Mr. X – 11% of Shares. The Majority Stakeholder of M/s DEF Private Limited is M/s. XYZ Private Limited which becomes the ultimate parent Company of M/s ABC Private Limited. In this case, we need to find the individual holding majority stake in the ultimate parent company. If Mr.Y holds more than 50% of M/s. XYZ Private Limited, then he will be the SBO of 89% Shares held in the name of M/s.DEF Private Limited.

Illustration 3: The Shareholders of M/s ABC Private Limited Company is M/s DEF Private Limited – 89% of Shares and Mr. X – 9% of Shares and M/s GHI Private Limited – 2% of Shares. No individual alone or together holds more than 50% of M/s. DEF Private Limited and Mr.X holds 99% in M/s GHI Private Limited. In this case Mr. X who holds indirectly (2%) and together with his direct holdings (9%) holds 11% of Shares in M/s.ABC Private Limited will be considered as SBO.

Illustration 4: In illustration 3, if the Shares of M/s. GHI Pvt Ltd was not held by Mr.X for more than 50% in M/s GHI Private Limited, then there will be no SBO as defined in clauses (i), (ii) and (iii) as mentioned above. In such cases, refer to the clause (iv), where an individual has right to exercise Control or Significant influence in any manner, he will be considered as SBO.

Control is defined in Section 2(27) of the Companies Act, 2013 as ―control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner; and

Significant influence is explained in these rules as, “significant influence” means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies’.

Thus, an Individual who does not hold shares indirectly along with his direct holdings for more than 10% in the Company, he can still be treated as SBO, if he has the right to exercise or actually exercises significant influence or Control in any manner in the operations of the Company.

Company’s Responsibility:

• It is the responsibility of the Company to find the Significant Beneficial Owner and cause such individual to make a declaration.
• To identify SBO, it shall give notice to its member who is not an individual and holds not less than 10% of its shares.
• On receipt of declaration from the SBO, the Company shall file a return with the registrar within a period of thirty days from the date of receipt of declaration. And
• The Company shall maintain register of significant beneficial owners in the specified form and make it available for inspection during the business hours.

Responsibility of the SBO:

• a) Every individual who is a SBO in a reporting company shall file a declaration to the reporting company within 90 days of commencement of this amended rules i.e., on or before 9th of May 2019.
• b) And every individual who subsequently becomes SBO after the said rules has commenced or there is any change in the ownership shall file a declaration within 30 days from the date of becoming SBO or the date of change in the ownership.

Forms for declaration and returns filing:

• 1. BEN 1 – Declaration by the SBO (to be made within 90 days from the commencement of the amended rules)
• 2. BEN 2 – Return to the Registrar by the reporting Company on receipt of Declaration (to be filed within 30 days from the date of receipt of declaration from the SBO)
• 3. BEN 3 – Register of Beneficial owners to be maintained by the reporting Company
• 4. BEN 4 – Notice by the Company to identify SBO

Non-Applicability of the rules:

These rules shall not be made applicable to the extent of Shares held by

• The authority constituted for administering the investor education and protection fund u/s 125(5)
• Its holding reporting company provided that details of holding reporting company is filed in its returns
• Central Government, State Government or local authority
• A reporting company, body corporate or an entity controlled by the Central Government or State Governments.
• SEBI registered investment vehicles regulated by SEBI.
• Investment vehicles regulated by RBI or IRDA or Pension fund regulatory and development authority

Implications of Non-Compliance:

a) Any individual who was served notice from a company believing that he is a SBO, he/she has to respond to such notice within a period of 30 days to the Company. When the Individual fails to do so or the information provided by the individual was not satisfactory to the Company, the Company shall apply to the tribunal for an order directing that the shares in question be subject to restrictions with regard to transfer of interest, suspension of all rights attached to the shares and such other matters as may be prescribed. The Tribunal may, after giving an opportunity of being heard to the parties concerned, make such order restricting the rights attached with the shares within a period of sixty days of receipt of application.

b) When a SBO fails to make a declaration, he shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than 1 lakh rupees and may extend to 10 lakh rupees or with both. And where the failure is a continuous one, the fine may extend to Rs.1000 per day for every day after the first during which the failure continues.

c) Where a company fails to maintain the register or fails to file the returns the company and every officer in default shall be punishable with fine which shall not be less than 10 lakhs and may extend to 50 lakhs rupees And where the failure is a continuous one, the fine may extend to Rs.1000 per day for every day after the first during which the failure continues.

d) Any person willfully provides false information or suppresses any material information; he will be liable to action under section 447 of the Companies Act, 2013 as punishment for fraud.

GST Impact on Real Estate Industry & Works Contract

Real estate industry is one of the most important pillars of the Indian economy. Real estate industry contributes between 6-8% of India’s Gross Domestic Product (GDP) and it stands second after IT industry in terms of employment generation. Let us understand the GST impact on Real Estate Industry in detail:

Understanding the pre-GST taxability of Real Estate Transactions

Nature of Duty	Rate of Tax	When was tax required to be paid? or What triggered tax?
VAT*	1 to 4%	On Sale of Under Construction Properties
Service Tax	4.5%
Registration Charges	0.5 to 1%
Stamp Duty Charges*	5 to 7%

Note :

*VAT, Registration Charges, Stamp Duty Charges vary from state to state
VAT was not applicable on completed or ready to sell properties.
Under the erstwhile indirect tax regime, Cenvat Credit on input goods used for the construction of a building or a civil structure or any part thereof was restricted too.

Taxability of Real Estate Transactions under GST

Particulars	Applicability	Rate of Tax	Input Tax Credit
On ready-to-move (RTM) properties for which completion certificates are issued	Not applicable – Because Sale of building is treated as activity or transaction which shall be treated neither as a supply of good nor a supply of service as per SCHEDULE III of CGST Act,2017	-	Not available
On Under Construction Properties (For Homes Purchased Under Credit-Linked Subsidy Scheme)	Applicable as supply of services as per Schedule I of CGST Act, 2017	8%*	Available
On Under Construction Properties (Other than above)	Applicable as supply of services as per Schedule I of CGST Act, 2017	12%*	Available
On resale properties	Not applicable	-	Not Available
On Land purchase and sale	Not applicable. As per Schedule III, sale of land is neither supply of goods nor services.	-	Not Available
Works contract	Applicable	18%	Available
Composite supply of works Contract	Applicable	18%	Available
Composite supply of works Contract to Government Authorities	Applicable	12%	Available
Composite supply of works contract – for use by general public	Applicable	12%	Available
Composite supply of works contract – Affordable Housing	Applicable	12%	Available

* Subject to amendment in 33rd GST Council Meeting

Recommendations of the 33rd GST Council meeting held on 24th February 2019

“Housing for All by 2022” envisions that every citizen would have a house and the urban areas would be free of slums. There are reports of slowdown in the sector and low off-take of under-construction houses which needs to be addressed. To boost the residential segment of the real estate sector, following recommendations were made by the GST Council in its 33 meeting:

GST rate:

i.GST shall be levied at effective GST rate of 5% without ITC on residential properties outside affordable segment

ii. GST shall be levied at effective GST of 1% without ITC on affordable housing properties.

Effective date: The new rate shall become applicable from 1 of April, 2019

Definition of affordable housing shall be:

A residential house/flat of carpet area of up to 90 sqm in non-metropolitan cities/towns and 60 sqm in metropolitan cities having value up to Rs. 45 lacs (both for metropolitan and non-metropolitan cities). Metropolitan Cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR).

Why did GST council recommend this change?

Real Estate industry was suffering from recession and stress since last couple of years.

Post implementation of GST the industry was almost dormant. On, 15th January, 2019 in pursuance of the decision in 32nd GST Council meeting, a Group of Ministers (GoM) consisting of 7 members was constituted to boost up the Real Estate Sector. The panel was headed by Gujarat Deputy Chief Minister Nitin Patel. The council, in its meeting on 10th January, 2018, had suggested setting up of a panel to boost the residential segment of the real estate sector.

The terms of reference of the panel include:

• Studying GST rates and problems the residential segment faces under the new indirect tax regime.
• Suggesting a scheme for the sector like the composition scheme—where taxpayers can pay a flat GST rate without the option of availing credit on inputs—for traders.
• Examining GST on transfer of development rights and development rights in a joint development agreement.
• Examining legality of inclusion or exclusion of land in composition scheme and suggest valuation mechanism. Currently, purchase or sale of land doesn’t attract GST.

As per the discussion the group has recommended 3% as GST rate for all those who are in Affordable Housing Projects and 5% for all others. This very Government and the Honourable Prime Minister has the target that every citizen should have a house of his own. He must be owner of a house. “Housing for All by 2022” envisions that every citizen would have a house and the urban areas would be free of slums. Considering all this, the initiative was taken by the Government of India and the GST Council has formed the committee which made the recommendation that was discussed in the GST Council meeting held on 20th February 2019 which was adjourned to 24th February 2019.

In 33rd GST Council meeting finally held on 24th February 2019 the decision was taken and the recommendations were made by the GST Council. The notification about the same is expected to be in public by 10th of March 2019.

The new tax rate in principle was approved by the Council taking into consideration the following advantages:

• The buyer of house gets a fair price and affordable housing gets very attractive with GST @ 1%.
• Interest of the buyer/consumer gets protected; ITC benefits not being passed to them shall become a non-issue.
• Cash flow problem for the sector is addressed by exemption of GST on development rights, long term lease (premium), FSI etc.
• Unutilized ITC, which used to become cost at the end of the project gets removed and should lead to better pricing
• Tax structure and tax compliance becomes simpler for builders.

Disadvantages of the recommendation of the GST council meeting:

Now prima facie there might seem various merits to the press release reducing the rate of GST on construction of Affordable as well Non-Affordable housing, however the reality seems to be different on actual working out of the numbers due to the restriction of Input tax credit. This is analyzed by us in the subsequent parts of this newsletter with illustrations.

Further, there are a few issues which have not yet been settled and which needs to be clarified by the dept. Below are such issues listed in detail.

Issues arising after the 33rd council meeting decision:

1. What would be the tax rates and ITC when the builder deals with construction of both residential as well as commercial property?

Rates are revised w.r.t. residential properties only (1% without ITC for affordable, 5% without ITC for non-affordable). Kindly note that there is no change in rate w.r.t. commercial properties. Moreover, these are effective rates, which means it will be applied to the total amount charged and not on 2/3 portion of total amount charged.

One may note that press release is not talking about the rate of inward supply of works contract to builder w.r.t. construction of residential property. It seems that such supply will be levied as per earlier position. Let’s wait for the notification to have the clarity.

Further, Issue arises how ITC shall be availed in cases where the subject matter is partially residential and partially commercial project because residential properties are charged without ITC (1%/5%), whereas commercial properties are charged without restricting ITC. It will emerge new issues for builders.

It will bring another transitional phase for builders. Few instances can be as below:

a. Where properties are under construction out of which few are sold on or before effective date (i.e. 01.04.2019 to be notified) and few are sold post such effective date. How ITC/ ITC reversal shall be dealt with in such cases?

This issue is not addressed in the press release; however, it is to be noted that after 1.4.19 the ITC would be allowed to be adjusted only on those properties on which GST would be payable (commercial Properties) and not on residential properties.

b. Where the part of the tax is levied (on account of advances/demand as per completion stage on booking of unit) before effective date and part of the tax to be levied post the effective date. How the tax liability shall be determined on the entire unit? It is also noticeable that meaning of affordable housing is different before and after the effective date.

The press release is silent as to how this scheme would apply to the ongoing projects and the notification has to be awaited. However, on notification being silent, GST needs to be applied on the rate prevailing on the time of supply. For all the new bookings after 1st of April 2019 the new rate of GST @ 5% will apply. For the flats booked prior to 1st April 2019 GST rates needs to be determined as per section 14 of the CGST Act, 2017.

c. What will be the fate of ITC remaining as on 31.03.2019?

The press release is silent on this aspect, and one needs to wait for the notification to address this scenario. It could be possible that the credit as on 31st March 2019 may lapse, which needs to be confirmed on issuance of notification. If they are forced to shift to the new scheme, they will have no means to adjust the unutilized ITC balances, leading to huge losses. We will, of course, have to wait for the relevant Notification to be issued by the Central Government in this regard and one fervently hope that the issues discussed in this article are duly considered.

2.What rate shall be applicable in case the land value is not included in any residential project?

As it appears the new proposed scheme would be applicable only when the sale of land is also part of the consideration and hence charging GST @ 5% excluding land, may not be possible. However, this needs to be confirmed on issue of the notification.

3. What will be the situation where the works contract services are taken by the builder from a works contractor?

Press release is silent on this issue so as on date, until the scheme is recommended by the GST Council and is approved, it could be said that such supplies of services by works contract shall be leviable as per the earlier rates only.

4. Whether it would be compulsory for Developers to implement the new scheme with effect from April 1, 2019?

The Government should offer the new scheme as an alternative to the existing scheme of charging GST @ 12% after claiming ITC. Making it compulsory for Developers to implement the scheme could face constitutional challenges, for sure, as this would go against the concept of seamless credit which is at the heart of the GST regime.

Impact of the Recommendations on Real Estate Companies

First, the price gap between under-construction and completed projects will come down. This in turn will revive demand for under-construction projects, especially from builders concentrating on lower income groups because the GST gap between under-construction and ready possession is just 1%/5% now.
While this GST rate cut will improve customer sentiments, pricing issues would remain, because the new reduced GST rates do not include input tax credit (ITC) benefits. Since input tax credit benefits will not be allowed on products like cement, steel, etc, the net impact on the final price might not be significant.
Builders who were not passing on the ITC of GST earlier would be in a better position now because there would be no impact on their margins, However, this cut will impact margins of builders who were passing on the benefit to their customers. They now have to increase their ‘base price’ to compensate for the loss of input tax credit. “Builders who were passing on the input tax credit benefit earlier will have to hike prices to maintain margins. This seems difficult in the current market scenario.

Builders may hike prices to maintain margins

Cost Now	Cost after 1 April 2019
House cost* = Rs 1 crore GST @ 12% = Rs 12 lakh Total cost = Rs 1.12 crore	House cost* = Rs 1.03 crore GST @ 5% = Rs 5.15 lakh Total cost = Rs 1.08 crore Difference = Rs 4 lakh or 4%

*Costs vary from project to project. Builders used to receive 2-3% of GST as input tax credit.

Impact of the Recommendations on Customers

Here we have made comparison of current scenarios with the future scenario and the expected effect the same is highlighted:

Residential property other than affordable housing
(Considering 60% of the total cost of project on which ITC available @ average rate of 18%)

Before 1-4-2019		After 1-4-2019
Particulars	Amount (INR)	Particulars	Amount (INR)
Land and Labour cost	40	Land and Labour cost	40
(+)Construction cost	60	(+)Construction cost	60
(+) GST on construction cost @18% (60*18%)	10.8	(+) GST on construction cost @18% (60*18%)	10.8
Total Cost of project	110.8	Total Cost of project	110.8
(-) Input Availed	-10.8	(-) Input Availed	0
Net cost to the Developer	100	Net cost to the Developer	110.8
(+) Margin	20	(+) Margin	20
Sale value of property	120	Sale value of property	130.8
Sale value of property consists of		Sale value of property consists of
a) Taxable value (120*2/3)	80	a) Taxable value	130.8
Add : GST (80*18/100)	14.4	Add : GST (130.80*5/100)	6.54
b) Land Value (120*1/3)	40
Cost to the buyer	134.4	Cost to the buyer	137.34
Difference = 1.94%

Residential property under affordable housing

Before 1-4-2019		After 1-4-2019
Particulars	Amount (INR)	Particulars	Amount (INR)
Land and Labour cost	40	Land and Labour cost	40
(+)Construction cost	60	(+)Construction cost	60
(+) GST on construction cost @18% (60*18%)	10.8	(+) GST on construction cost @18% (60*18%)	10.8
Total Cost of project	110.8	Total Cost of project	110.8
(-) Input Availed	-10.8	(-) Input Availed	0
Net cost to the Developer	100	Net cost to the Developer	110.8
(+) Margin	20	(+) Margin	20
Sale value of property	120	Sale value of property	130.8
Sale value of property consists of		Sale value of property consists of
a) Taxable value (120*2/3)	80	a) Taxable value	130.8
Add : GST (80*18/100)	9.60	Add : GST (130.80*5/100)	1.308
b) Land Value (120*1/3)	40
Cost to the buyer	129.60	Cost to the buyer	132.108
Difference = 1.94%

Conclusion:

It is hereby noted that, in every scenario shown above there is a negative impact to the buyers wherein there is an increase in cost 2.2% in case of Other than Affordable housing scheme and 1.94% case of Affordable housing scheme.

It is understood that many Developers have already started receiving calls from their flat buyers not to bill them till March 31, 2019. While it is not certain as to whether the proposed reduced GST rate would indeed push up demand, it would certainly result in most Developers seeing significant reduced cash flows till March 31, 2019.

Introduction:

The Institute of the Chartered Accountants of India (ICAI) is the body that formulatesAccounting Standards in India. In 2006, ICAI initiated the process of shifting towards the International Financial Reporting Standards (IFRS) for achieving the acceptability and transparency of Financial Statements of Indian corporates in the global platform.

The government and ICAI first analysed the requirements of IFRS in detail.The Central Government of India (through Ministry of Corporate Affairs) issued the Indian Accounting Standards (Ind AS) recommended by the National Advisory Committee on Accounting Standards (NACAS) and Accounting Standards Board (ASB) which was set up specifically to formulate the Ind AS. The ASB has tried it’s best to keep them in line with the IFRS.Indian AS (Ind AS) are IFRS converged standards. The Standards numbering are retained in the same way as that of the corresponding IFRS.

Objective:

The basic objective of Ind AS is to remove variations in the treatment of several accounting aspects and to bring about standardization in presentation of financial statements. They intend to harmonize the diverse accounting policies followed in the preparation and presentation of financial statements by different reporting enterprises so as to facilitate intra-firm and inter-firm comparison.

Tax Impact:

In order to make the transition of Ind AS smooth and to resolve the tax related issues, the Ministry of Finance had notified 10 Income Computation and Disclosure Standards in March 2015. These standards provide an independent framework for computation of taxable income, which is delinked from the statutory financial reporting by companies. However, the basis for ‘Minimum Alternative Tax’ (MAT) computation for companies reporting under Ind AS still remains an issue to be addressed.

Applicability of IND-AS:

• 1. Ministry of CorporateAffairs (MCA) has notified Companies (Indian Accounting Standards) Rules, 2015 prescribing the new Indian Accounting Standards (Ind As) applicable to companies/classes of companies.
• 2. The applicability of new Ind AS 2015 vis-a-vis AS 2006 has been defined in Rule 4 and is summarised as under:
• 3. It is evident that unlisted companies having Networth less than 500 crores are not required to follow these new Ind AS. However, once the Indian Accounting Standards (Ind AS) are applied voluntarily, it shall be irrevocable.
• 4. It has been categorically specified that once a company starts following the Indian Accounting Standards (Ind AS) either voluntarily or mandatorily on the basis of criteria specified, it shall be required to follow the Indian Accounting Standards (Ind As) for all the subsequent financial statements even if any of the criteria specified does not subsequently apply to it.

The Implementation of Ind AS is being done in a phased manner as below:

Companies other than Banks, NBFCs and Insurance Companies

Phase I	1st April 2015 or thereafter:Voluntary basis for all companies (with comparatives)
	1st April 2016: Mandatory Requirement
	(a)	Companies Listed/in process of listing on Stock Exchanges in India or Outside India having a net worth of rupees five hundred crore or more;
	(b)	Unlisted companies having net worth of rupees five hundred crore or more;
	(c)	Holding, Subsidiary, Associates and Joint Ventures of (a) and (b).
Phase II	1st April 2017: Mandatory Requirement
	(a)	All companies listed/in the process of listing in India/outside India on any stock exchange having net worth of less than five hundred crore;
	(b)	Unlisted companies having net worth of rupees two hundred and fifty crore or more but less than rupees five hundred crore;
	(c)	Holding, Subsidiary, Associates and Joint Ventures of (a) and (b).

• 1. Companies not covered by the above roadmap shall apply existing Accounting Standards notified in Companies (Accounting Standards)Rules, 2006
• 2. Companies listed on SME exchange are not required to apply Ind AS.
• 3. Once Ind AS are applicable, an entity shall be required to follow the Ind AS for all subsequent financial statements.

Non-Banking Financial Companies (NBFC’s)

Non-Banking Financial Companies (NBFCs)
Phase I	From 1st April, 2018 (with comparatives for the periods ending on 31st March, 2018)
	NBFCs having net worth of rupees five hundred crore or more (whether listed or unlisted)
	holding, subsidiary, joint venture and associates companies of above NBFC other than those already covered under corporate roadmap shall also apply from said date
Phase II	From 1st April, 2019 (with comparatives for the periods ending on 31st March, 2019)
	NBFCs whose equity and/or debt securities are listed or in the process of listing on any stock exchange in India or outside India and having net worth less than rupees five hundred crore
	NBFCs that are unlisted companies, having net worth of rupees two hundred and fifty crore or more but less than rupees five hundred crore
	holding, subsidiary, joint venture and associate companies of above other than those already covered under the corporate roadmap

• 1. Companies not covered by the above roadmap shall apply existing Accounting Standards notified in Companies (Accounting Standards)Rules, 2006
• 2. Companies listed on SME exchange are not required to apply Ind AS.
• 3. Once Ind AS are applicable, an entity shall be required to follow the Ind AS for all subsequent financial statements.

Benefits of IND-AS:

The move to Ind-AS standards may significantly enhance the quality and transparency in financial reporting by Indian companies. It may also enhance the international comparability of financial statements of Indian companies and make the Indian capital markets more attractive. It may also reduce capital costs and facilitate international fund-raising by Indian companies. Applying IFRS converged standards has significant potential benefits for Indian multinationals operating across the world and for multinationals operating in India.

Difference in IND-AS and AS:

Sr. no	Area	Ind-AS (Indian Accounting Standards as converged with IFRS)	Accounting Standards
1)	Substance	Ind-AS are generally substance based. For example, consolidation is required under Ind-AS 110 if the holdingcompany has control over its subsidiary and definition of control is substance based.	Indian Accounting Standards are generally rule based and are less flexible. For example as per AS 21,consolidation is required if a company holds more than 50% of the votingrights or control over appointment of Board of Directors
2)	Applicability	Ind-AS will be applicable in phases to mainly large companies (see table given above in this article)	AS applicable to not only the companies, but to other entities as well. To the companies, notified standardsunder company rules are applicable and for other entities, AS published by ICAI are applicable
3)	Guidance	Ind-AS generally use the word –“shall” in its guidance, which makes it stricter.	AS generally use the word “Should” which is more advisory in nature
4)	New Standards	Ind-AS provide guidance on various transactions like agriculture, business combinations etc.	These guidance were not existing in AS.
5)	Interpretations	Ind-AS has incorporated various interpretations which are part of IFRS, thus making it comprehensive.	Various guidance notes and other publications are available along with AS in existing scenario