SMALL NOTE ON RERA: FIRM STEP TOWARDS PREVENTION OF BLACK MONEY
Coming to the point, RERA act has been enacted with two basic purpose-:
1. To bring transparency in the Real Estate Sector
2. To protect interest of the innocent buyer.
Most important thing about this act is that it has fixed specific responsibilities on three professionals
viz. Architect, Engineer & Chartered Accountant. These professionals are expected to provide
certificates in specific format giving information about progress of the project and financial discipline.
Second important thing is that most of the information submitted with RERA authority is public in
nature and anyone may view the same through website of the authority. In Short, it is very strong
medicine for regulation of the Real Estate Industry. Hence, let us go through effects and side effects
of this medicine one by one.
1. As per RERA, developer is obliged to deposit 70% of the booking money in specific designated
bank account. Developer will be able to withdraw money from this account only after it has
been certified by three professionals viz. Architect, Engineer & Chartered Accountant in
specific format. These certificates shall mainly contain information about percentage of
completion of the project and money spent for the same. Money shall be allowed to be
withdrawn only in that proportion.
Now, let us know about normal practice prevalent in the real estate sector. Most of the
developers have close relatives of politicians and bureaucrats as their partners. Major chunk
of cash used for the purchase of land and construction material come from these pseudo
partners of politicians and bureaucrats. Hence, they have safe and profitable heaven to invest
their cash earned through illegitimate resources.
The most important change because of enactment of this law is going to be that henceforth,
developers would not be happy to accept cash from their pseudo partners. Reason being
amount of booking money that can be withdrawn from designated bank account is directly
proportional to amount that has been actually spent by the developer on the project. Cash
being unaccounted, wouldn’t be reflecting into books of accounts. Hence, CA certificate will
not be considering this cash while certifying amount that can be withdrawn. Hence, it will be
difficult for the developer to withdraw cash from bank account resulting into harsh problems
in cash flow.
2. Obvious question after this is what if these professionals go hand in hand with developer.
Well, legislators already though about it and one more provision has been incorporated I e
RERA audit. CA shall check and certify all the certificates issued during the year by these three
professionals and qualify for discrepancies, if any. Law says that CA issuing certificate and CA
doing RERA audit must be two different, independent and unrelated CAs. RERA audit report
issued by CA shall be public document and can be viewed by general public. Hence, Expense
on project as certified by CA for withdrawal of money from bank account and audited financial
statements as certified by RERA auditor must be in synch with each other. Else, it may cost a
degree to these professionals. (Provision is made to this effect in to regulations of this Act)
3. Developer is required to disclose on RERA website, total number of apartments or units
planned to be developed along with their carpet area and total number of sold apartments or
units out of the same. Developer is also expected to timely update this information. Hence,
Assesment officer can quickly match information available on RERA website with actual
financial statements submitted by developer resulting into quick and easy assessment of
Income Tax. Same is the case with GST. GST assessment officer can easily fix up liability by just
browsing through RERA website.
4. If still, cash is accepted and spent by developer, then his profit figure shall increase resulting
into higher tax liability.
5. Heavy penalties are imposed in RERA for non-compliance at times resulting into 5% to 10% of
the total estimated cost of the project. Complaint and appeal redressal mechanism is very
quick in RERA (RERA authority has to dispose off complaint within 60 days) resulting in to quick
justice to innocent buyers. This shall make this sector law compliant resulting into growth of
corporate culture and less dependence on politicians and bureaucrats.
6. Transparency brought in by RERA act would boost FDI in this sector which was little worried
about constantly changing or absence of clear legislation for this sector.
7. Real estate sector has already suffered price bubble due to high amount of illegitimate
unaccounted cash flowing in this sector making houses unaffordable for common man. As
explained earlier, this law will result into transparency and regulation of this sector wiping off
undue profits and will help to settle price bubble created. Prices shall be left to the market to
be decided on demand supply basis.
Therefore, it can be firmly said that RERA is strong step after demonetization to curb and prevent black
money.
- CA Sumit Kapure
(M) +91 9892 860 706
Sumit.kapure@gmail.com
Govt of India passed RERA Act in both houses of parliament during the last year. As per the law, Govt of Maharshtra took quick action to enact rules and Authority under RERA Act. For the first time ever, specific law has been actually enacted in this country to regulate most undisciplined sector ie Real Estate which is also called as safe heaven for black money.
1. To bring transparency in the Real Estate Sector
2. To protect interest of the innocent buyer.
Most important thing about this act is that it has fixed specific responsibilities on three professionals
viz. Architect, Engineer & Chartered Accountant. These professionals are expected to provide
certificates in specific format giving information about progress of the project and financial discipline.
Second important thing is that most of the information submitted with RERA authority is public in
nature and anyone may view the same through website of the authority. In Short, it is very strong
medicine for regulation of the Real Estate Industry. Hence, let us go through effects and side effects
of this medicine one by one.
1. As per RERA, developer is obliged to deposit 70% of the booking money in specific designated
bank account. Developer will be able to withdraw money from this account only after it has
been certified by three professionals viz. Architect, Engineer & Chartered Accountant in
specific format. These certificates shall mainly contain information about percentage of
completion of the project and money spent for the same. Money shall be allowed to be
withdrawn only in that proportion.
Now, let us know about normal practice prevalent in the real estate sector. Most of the
developers have close relatives of politicians and bureaucrats as their partners. Major chunk
of cash used for the purchase of land and construction material come from these pseudo
partners of politicians and bureaucrats. Hence, they have safe and profitable heaven to invest
their cash earned through illegitimate resources.
The most important change because of enactment of this law is going to be that henceforth,
developers would not be happy to accept cash from their pseudo partners. Reason being
amount of booking money that can be withdrawn from designated bank account is directly
proportional to amount that has been actually spent by the developer on the project. Cash
being unaccounted, wouldn’t be reflecting into books of accounts. Hence, CA certificate will
not be considering this cash while certifying amount that can be withdrawn. Hence, it will be
difficult for the developer to withdraw cash from bank account resulting into harsh problems
in cash flow.
2. Obvious question after this is what if these professionals go hand in hand with developer.
Well, legislators already though about it and one more provision has been incorporated I e
RERA audit. CA shall check and certify all the certificates issued during the year by these three
professionals and qualify for discrepancies, if any. Law says that CA issuing certificate and CA
doing RERA audit must be two different, independent and unrelated CAs. RERA audit report
issued by CA shall be public document and can be viewed by general public. Hence, Expense
on project as certified by CA for withdrawal of money from bank account and audited financial
statements as certified by RERA auditor must be in synch with each other. Else, it may cost a
degree to these professionals. (Provision is made to this effect in to regulations of this Act)
3. Developer is required to disclose on RERA website, total number of apartments or units
planned to be developed along with their carpet area and total number of sold apartments or
units out of the same. Developer is also expected to timely update this information. Hence,
Assesment officer can quickly match information available on RERA website with actual
financial statements submitted by developer resulting into quick and easy assessment of
Income Tax. Same is the case with GST. GST assessment officer can easily fix up liability by just
browsing through RERA website.
4. If still, cash is accepted and spent by developer, then his profit figure shall increase resulting
into higher tax liability.
5. Heavy penalties are imposed in RERA for non-compliance at times resulting into 5% to 10% of
the total estimated cost of the project. Complaint and appeal redressal mechanism is very
quick in RERA (RERA authority has to dispose off complaint within 60 days) resulting in to quick
justice to innocent buyers. This shall make this sector law compliant resulting into growth of
corporate culture and less dependence on politicians and bureaucrats.
6. Transparency brought in by RERA act would boost FDI in this sector which was little worried
about constantly changing or absence of clear legislation for this sector.
7. Real estate sector has already suffered price bubble due to high amount of illegitimate
unaccounted cash flowing in this sector making houses unaffordable for common man. As
explained earlier, this law will result into transparency and regulation of this sector wiping off
undue profits and will help to settle price bubble created. Prices shall be left to the market to
be decided on demand supply basis.
Therefore, it can be firmly said that RERA is strong step after demonetization to curb and prevent black
money.
- CA Sumit Kapure
(M) +91 9892 860 706
Sumit.kapure@gmail.com
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