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ICDS draft for Real Estate Transactions

The Central Government had notified Income Computation and Disclosure Standards (ICDS) vide notification dated 29th September, 2016 by way of powers conferred under Section 145 (2) of Income Tax Act, 1962. The notified standards have mentioned identification of revenue from construction contracts, sale of goods and providing of services. However there was no standard for recognition of revenue from real-estate transactions.
Thereafter, the CBDT placed the ICDS drafts for recognition of income from such transactions on 11th May, 2017. This Income Computation and Disclosure Standard shall be applicable for determination of income from all forms of transactions in real estate, which refers to land as well as buildings and rights in relation thereto. The draft provides that where the economic substance is similar to a construction project, project revenue and cost shall be recognized by referring to the stage of completion of the project on the last date of financial year. Further, it is stated that where the substance of the project is not similar to that of a construction project, the income will be recognized in accordance with income from sale of goods as prescribed in ICDS IV.
Indicators that economic substance of a project is similar to a construction contract are: (a) The duration of such projects is beyond 12 months and the project commencement date and project completion date fall into different previous years, (b) Project involves activities similar to construction contracts such as land development, structural engineering, architectural design, construction or activities of similar nature, (c) While individual units of the project are contracted to be delivered to different buyers these are interdependent upon or interrelated to completion of a number of common activities with or without provision of common facilities and (d) The construction or development activities form a significant proportion of the project activity.
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