Understanding RERA Audit Provisions and Compliance
This presentation by CA Vinay Thyagaraj covers key aspects of the Real Estate (Regulation and Development) Act, 2016, focusing on post-registration financial management, RERA audit challenges, and types of certificates for ongoing projects. The session emphasizes the importance of compliance with RERA provisions and offers insights into ensuring transparency and accountability in real estate development projects.
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The Real Estate (Regulation and Development) Act, 2016 Presentation by CA. Vinay Thyagaraj, B.Com., LLB Partner Venu & Vinay Chartered Accountants Bengaluru
Session CA. Vinay Thyagaraj B.Com., LLB Chartered Accountant Bengaluru RERA Audit Provisions and Compliance under Statute On 19thSeptember, Thursday at 8 AM at Bangalore Branch of SIRC of ICAI, Bengaluru Venu & Vinay, Chartered Accountants
Presentation Overview - Contents 1. Post Registration Financial Management a. Funds collected from Allottees b. Utilisation of / withdrawal of funds c. Professional Certification 2. RERA Audit Challenges and possible solutions Q & A Session Venu & Vinay, Chartered Accountants
Post Registration Financial Management a. Funds collected from Allottees b. Utilisation of / withdrawal of funds c. Professional Certifications Venu & Vinay, Chartered Accountants
Types of Certificates CAs Sl No 1 Certificate for Ongoing Project 1st time Act / Rule Ref Karnataka RERD Rule- Rule 4(2)(c ) Certifying Extent of development carried out, pending money collected from allottees, spent for project and balance with promoter On every withdrawal from project Bank Account RERD Act Withdrawal of money from project bank account is in proportion to the % of completion of the project 2 2nd proviso to sec 4(2)(l)(D) Annual Audit under RERD Act RERD Act 1. Amounts collected from Allottees for a particular project have been utilised for the same project and 3 3rd proviso to sec 4(2)(l)(D) 1. the withdrawal has been in compliance with the proportion to the % of completion of the project Venu & Vinay, Chartered Accountants
Why What Whom How When Who Venu & Vinay, Chartered Accountants
Legal Mandate of RERA Audit Why Annual Audit under RERD Act 2016 RERD Act Amounts collected from Allottees for a particular project have been utilised for the same project and 3rd proviso to sec 4(2)(l)(D) the withdrawal has been in compliance with the proportion to the % of completion of the project Venu & Vinay, Chartered Accountants
RERA Audit Applicable to Whom Applicable to All promoters of Real Estate Projects registered under RERA and not completed project :- Questions is it applicable if - 1. No money is collected from intending buyers 2. Development work has not been started - many reasons 3. Any treshhold limit like turnover criteria / size of the project 4. Project is stopped / discontinued NGT / litigation 5. Exclusions a. Projects not under RERA Venu & Vinay, Chartered Accountants
RERA Audit Due date for furnishing report When Accounts to be audited within six months after the end of financial year Accordingly 30th September is the due date Questions :- is audit applicable if 1. Project registered with RERA post 31st March 2019 yes / no 2. Project abandoned / filed under IBC Venu & Vinay, Chartered Accountants
RERA Audit who should issue report Who Chartered Accountant in practice shall issue audit report Questions :- 1. Who is CA -is it defined in the Act yes 2. Can CA in employment audit / certify - no 3. Can internal auditor audit / certify - no 4. Can Tax Auditor certify yes 5. Can Statutory Auditor - yes 6. Can ? The Same CA, who issued periodical withdrawal certificate yes / no Venu & Vinay, Chartered Accountants
RERA Audit where to submit where 1. Act and Rules silent about method of submission of the Audit Report and Certificates 2. However authorities have made a provision to upload these reports online / manual submissions Venu & Vinay, Chartered Accountants
RERA Audit how to start How Understand the scheme of the project first RERA Project Project - multiple Entity Phases / tower Group multiple entities multiple Projects Venu & Vinay, Chartered Accountants
RERA Audit how to start How Understand the scheme of the project first one cannot issue the RERA audit certificate in isolate without understanding project details :- 1. Start with RERA Application and details available there on 2. Understand what is mentioned in RERA Application about the project 3. Note down financial aspects of project as per RERA Application a. Ascertain on what basis the financial details are give /declared i. Estimated Cost of the Project a) Estimated Cost of Land b) Estimated Cost of Development (Construction + Other Costs) ii. Amount collected from Allottees iii. Amount Spent as on date of application iv. Amount remaining with promoter, if any Venu & Vinay, Chartered Accountants
How - 2 RERA Audit how to start .continued 4. Note down project bank account declared in the RERA Application 5. Collect list of bank accounts maintained by promoter for a project a. Is Single Promoter or Multiple (Bank Account s) 6. policy of promoter in managing the finance of a project a. Collection account and transfer viz., 30/70 b. Lender / JV / JD Escrow account ,if any c. Passthrough charges bank account d. GST / taxes bank account Venu & Vinay, Chartered Accountants
How - 3 RERA Audit how to start .continued 7. Collect professional certificates till 31st March 2019 obtained by the promoter on every withdrawal (refer Sec 4(2)(l)(D) 2nd proviso) A / C / E 8. First time certificate from professionals as per KA RERD Rules a. Excess money collected if any b. Deposit into project account with in 90 days from the date of application 9. Collect total money collected from allottees a. Deposit of such money in 30 / 70 10. Withdrawal of such 70 % money from project bank account a. Supported by A / C / E certificates Venu & Vinay, Chartered Accountants
RERA Audit start .continued How - 4 11. If receivables in an ongoing project are less than the estimated cost of balance construction, then the promoter shall deposit 100 per cent of the amounts to be realised in the separate account a. Check and ensure this information from application b. Check 100 % collections are deposited (without taking 30 %) Eg., a. funds required to complete the project 10 Crores b. Receivables as on 10-7-2017 are 8 Crores c. 30 / 70 is not applicable as per proviso to KRERA Rule 4(5) Venu & Vinay, Chartered Accountants
RERA Audit start .audit now begin Consolidate all the information / documents received till 31st March 2019 in a Excel to arrive at conclusion on :- 1. Amounts collected for a particular project have been utilised for the same project 2. Withdrawals have been in proportion to the % of completion of the project Venu & Vinay, Chartered Accountants
RERA Audit collected process 1. Amounts collected for a particular project to be deposited in project bank - a. From allottees only b. If project loan / borrowing made, it should not be deposited into PB A/c c. Reconcile the receipts from various sources i. Agreements / demand sent ii. 26 AS 1 % deduction made by allottees iii. GST filed (difficult as it has been filed Company wise) iv. Bank account statements Amount collected during the year for this project is Rs. ___________ and amounts collected till date is Rs. __________ (since inception) Question RERD Act 2016 WEF 1-5-2017, however certificate has a mention of during the year Venu & Vinay, Chartered Accountants
RERA Audit utilised process And have been utilised for the same project a. Having drawn money for PB A/c, money has been utilised to make payment to vendors, suppliers, expenses, establishment cost etc., b. Intent is not to divert the funds, having collected from allottees Amount withdrawn during the year for this project is Rs. _____________ and amount withdrawn till date is Rs. ________ (since inception) collected till date and withdrawn TILL DATE means to review the details since inception of the project - how to rely on the information means a duplication of review Additional work to promoter Venu & Vinay, Chartered Accountants
RERA Audit utilisation process Questions:- utilisation 1. Repayment of Loan permitted if loan obtained is for this project 2. Payment of penalty or fines no restrictions as such 3. Advance to suppliers permitted ensure such materials are supplied 4. GST / Indirect Tax payments yes 5. Income Tax payments NO it is out of 30 % 6. Refund to clients Yes 7. Payment to associate / related party / sister concern as advance yes / no Venu & Vinay, Chartered Accountants
RERA Audit proportion and % of completion process Withdrawal has been in compliance with the proportion to the % of completion of the project :- a. Based on Architect and Engineer Certificate b. Calculate % based on financial statements / books of accounts c. Prudence to be followed (which ever is lower) + advance payments towards supply of materials and services shall be considered Venu & Vinay, Chartered Accountants
RERA Audit Qualification / Non Compliance Report Qualification / Non Compliance :- 1. collection from customers are deposited in other than 70 %RERA project Bank Account 2. collection from customers in cash, not at all deposited into bank 3. amount withdrawn in excess of eligible amount 4. Withdrawn amount has not been utilised for the same project 5. Non maintenance of prescribed register / records / documents (like professional certificates) Venu & Vinay, Chartered Accountants
RERA Audit Challenge How Understand the scheme of the project first RERA Project Project - multiple Entity Phases / tower Group multiple entities multiple Projects Venu & Vinay, Chartered Accountants
RERA Audit Challenges Challenges 1. Sufficient Knowledge of Act and Rules Both promoter and professionals 2. Information filled during registration is erroneous what stand will u take 3. Record / data / expenses maintenance a. RERA Project wise 4. Allocation of common expenses RERA project-wise a. Basis of allocation b. Loan availed and interest apportionment to RERA project-wise 5. Reconciliation at various stages and different records 6. Clarity on the statute, being new to all 7. In case of single RERA registration information from Landlord and compliance there on under RERD (being a Co- Promoter) Venu & Vinay, Chartered Accountants
RERA Audit unanswered questions avyakrta 1. Certificate has a mention of YEAR however RERD Act 2016 applicable WEF 1-5-2017 2. Which format to issue Audit Report in KA 3. Who should certify as few states have published the format of certificate to be issued - STATUTORY AUDITOR of the promoter to issue certificate in the absence of clarity 4. Where to submit online or manual Venu & Vinay, Chartered Accountants
RERA Audit Best Practices To Follow 1. Don t be biased on the information and report 2. Don t be under the influence of Promoters 3. Don t be casual on report / certification 4. Collect sufficient documents / information 5. If you don t know, ask others 6. If you are not sure report it Certificates issued may become public documents and amenable under RTI Venu & Vinay, Chartered Accountants
Certificates CAs 1. Different states may prescribe different formats of certificates. 2. Currently, the regulators of most of the states have prescribed the formats. 3. This certificate shall be issued by a CA holding COP 4. CA to collect project financial information from the promoter. 5. Collect estimated cost of project, escalation if any and details there on 6. CA to collect and consider all professional certificates issued from time to time for withdrawal of project. This certificate shall be submitted to authorities and is a public document. It could be made available for viewing at the portal of the regulators in the respective states. The comments in this note are purely a matter of interpretation and not binding on any regulatory authorities. Therefore, there can be no assurance that the regulatory authorities will not take a position contrary to our comments or views.
RERA Audit Certificate Form Annual Report on Statement of Accounts (on the letter head of chartered accountants who is statutory auditor of the promoter s company/firm) To, [NAME & ADDRESS OF PROMOTER] SUBJECT: Report on Statement of Accounts on project fund utilization and withdrawal by [Promoter] for the period from ____ to ___with respect to project______ RERA Registration Number ________ 1. This certificate is issued in accordance with the provisions of the Real Estate (Regulation and Development) Act, 2016 read along with the Real Estate (Regulation and Development)(Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2017 Karnataka. Venu & Vinay, Chartered Accountants
RERA Audit Certificate Form 2. I/We have obtained all necessary information and explanation from the Promoter/ Company, during the course of our audit, which in my/our opinion are necessary for the purpose of this certificate. 3. I/We hereby confirm that I/We have examined the prescribed registers, books and documents, and the relevant records of [Promoter] for the period ended ________ and hereby certify that: i. M/s.____ (Promoter) have completed ________% of the project titled ______ RERA Registration No._____located at ____________. ii. Amount collected during the year for this project is Rs. ___________ and amounts collected till date is Rs. __________. iii. Amount withdrawn during the year for this project is Rs. _____________ and amount withdrawn till date is Rs. ________. Venu & Vinay, Chartered Accountants
RERA Audit Certificate Form 4. I/We certify that the [Name of Promoter] has utilized the amounts collected for___ project only for that project and the withdrawal from the designated bank account(s) of the said project has been in accordance with the proportion to the percentage of completion of the project. (If not, please specify the amount withdrawn in excess of eligible amount or any other exceptions) Signature and Stamp/Seal of the Signatory CA) Name of the Signatory: Place: Date: Contact No. : E mail: Full Address: Membership No.:
Documents 1. 2. 3. 4. 5. 6. 7. Accounting records updated books of accounts Copy of application filed for registration of project under RERD Act Details of calculations considered to arrive at estimated cost of project. All project related documents like land documents, sanctions, clearances, NOC s Amount incurred towards acquisition of land or TDR etc All bank statements of RERA project account and other bank accounts Statement of customers, list of agreement of sales entered, advances received, balance receivables etc Money collected from allottees, 70 % deposit made to RERA project bank account All government fees challahs for all clearances etc 10. All development expenses bills, vouchers, invoices for both onsite and offsite expenditures 11. Advance paid for supply of materials or services vouchers, references etc 12. Certificates from Engineer, Architect and CA for withdrawal of money based on % of completion of construction 13. Project Loan or other loan statements 14. Interest calculation / attribution towards the project. 15. Indirect taxes / GST paid from time to time 8. 9.
Offences and Penalty under RERA Act RERA Provision Non-registration of project/agent with RERA and continue to do so Promoter Agent Allottee Up to 10% of project cost and imprisonment of 3 years for continuous default Penalty of INR10,000 per day during default tenure up to 5% of property cost False information while making an application to RERA Non-compliance with any provision of the Act Non-compliance with the order of RERA Up to 5% of the estimated project cost Up to 5% of the estimated project cost Up to 5% of the estimated project cost Up to 10% of cost and imprisonment of up of up to 3 years or both Up to 5% of the property cost Up to 5% of cost property cost Up to 5% of cost property cost Non-compliance with the order of the Appellate Tribunal Up to 10% of cost and imprisonment of up of up to 1 years or both Up to 10% of cost and imprisonment of up of up to 3 years or both Venu & Vinay, Chartered Accountants
Sl No Questions Solutions 1 Estimated Cost of Project declared is wrong in the Application while registration 1. Let Promoter file application for amendment 2. Satisfy yourself before accepting such changes 3. Take undertaking to that effect from promoter 4. Issue report based on revised with a note in the certificate 2 Project is registered as ONE No co-operation from either promoter / Co-promoter 1. Proper note and qualification in the Audit report 2. Mentioning the basis of issuance of report 3 Differences in % of Completion between statutes (e.g., Income Tax, Accounts) 1. Yes, always there will be a difference between RERA and other statutes, reconcile and retain the details and documents 4 Non obtaining of professional certificate - 1. 1st time certificate 2. For every withdrawal 1. @ first instance many are not aware of these compliances 2. Do the audit and issue the certificate 3. Mention in the certificate fact of non obtaining of periodical certificates for withdrawal of funds 5 Not Followed 30 / 70 1. Report in the certificate
Sl No Questions Solutions 6 Not Deposited 70 % of the amount collected in the RERA Designated bank account 1. Report in the certificate 7 Frequency of Deposit of 70 % - any prescribed periodicity 1. No Such prescription in the statute (mentioned as time to time) 2. As long as the funds are moved to Project Bank Account without any diversion, is in compliance 8 Is it mandatory to deposit the 70 % of Allottees money or I can utilise without depositing (E.g., promoter already spent his own funds) 1. No, Always promoter shall deposit the money collected from the Allottes and shall withdraw based on % of completion of the project 9 Land owner is the provisions of 70/30 applicable 1. Yes, He is also included in the definition of promoter. 2. All Provisions of the statute is applicable to Landowner also 10 How long I should maintain the RERA Project Bank Account 1. Till Completion of the project
Sl No Questions Solutions 15 Amount realised from Allottees includes Other Charges (BESCOM, BWSSB) Clubhouse development GST Customer deducted TDS 1. Look into financial practice post RERA by promoter 2. All Collections (irrespective under any heads) shall be part of realisation (actually, total value of the unit is mandatory under RERA with or without bifurcation) 3. Is the project is under (18 % or 7.50% ) Scheme 4. Do promoter depositing GST into same project Bank account or separate bank 5. If separate bank account, he cannot draw GST on purchases from 70 % account 6. TDS of 1% is more line Income Tax which is not allowed to withdraw out of 70 %, hence shall consider as realised for the purpose of withdrawal
Sl No Questions Solutions 11 Can I use the Same Project Bank Account to next project 1. Not Recommended as the project details already provided to earlier project 2. Once Project is completed in all aspects, file for completion with RERA 3. Close the Project Bank Account 4. Always use fresh / new bank account for each RERA Registered Project 12 Hierarchy of Project Loan / Lender Escrow Account 1. Always below 70 % of the Account 13 Follow Bank statements or financials for RERA Audit 1. For Collections Bank Statements 2. For Incurred Financials 14 Project is very old and continuing (registered as Ongoing Project 1. Still RERA Audit is applicable 2. CA should have done exercise while issuing Form 1 Certificate during Post Registration or While issuing Form 4 during withdrawal of funds
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