Understanding Affordable Housing under different laws

INCOME TAX - Sec 80IBA
The carpet area as per RERA of the residential unit comprised in the housing project does not exceed 30 sq mtr where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai [BCDC] and 60 sq mtr at any other place outside the cities of Chennai, Delhi, Kolkata or Mumbai.

GST
Total Carpet Area of the residential property cannot exceed 60 square meters in metropolitan areas and 90 square meters in non-metropolitan cities and towns AND Total value of property cannot exceed Rs.45 lakh in either metropolitan [BCDC BH]or non-metropolitan areas.

INFRASTRUCTURE STATUS
Affordable Housing is defined as a housing project using at least 50% of the Floor Area Ratio (FAR) / Floor Space Index (FSI) for dwelling units with Carpet Area of not more than 60 sqm.

CLSS

Scheme Type   Carpet Area - Max (sq.m.)

EWS / LIG         30 sqm** / 60 sqm**

MIG - I              160 sqm

MIG - II             200 sqm

How to Run a Monthly Plan Review Meeting

Most people think that meetings are a waste of time. They’re right.

Too many meetings are run poorly, have no real objective, and waste employees’ time—which kills productivity.

There’s tons of advice and information on how to run better meetings and cut down on useless meetings that are making your organization move slower. I absolutely encourage you to be ruthless in your pursuit of fewer and more efficient meetings.

But, here at Palo Alto Software, we’ve found one meeting that is simply indispensable. It only takes an hour each month, keeps the management team up to speed on everything that’s going on in the company, and helps us plan and manage in a lean and effective way.

This meeting is our monthly plan review meeting. The meeting has been a fixture of our management strategy for years and is simply one of the most effective ways for us to continue to grow the company and adjust our course as necessary.

For us, business planning isn’t just a one-time or annual event. Instead, it’s an ongoing process where we are constantly reviewing our process and adjusting course as necessary while ensuring that we’re staying on track toward our larger goals.

We treat planning not as a document, but as a management tool that helps guide decisions and strategy.

Here’s a quick overview of how we structure our monthly plan review meetings and what’s worked for us over the years.

1. Let’s do the numbers

We always start with the numbers first. How did we do last month compared to our forecast? How did we do compared to the same month last year? What does our year-to-date performance look like?

We always spend time drilling into the numbers, beyond the top-line revenue and expenses to better understand what the drivers were behind our performance. Did all product lines perform well? Or did some underperform? Did we spend as planned or were there some areas that we overspent in?

Most importantly, we review our cash position and cash flow. Did we collect money as planned? What does our cash flow forecast look like for the next few months?

While financial reports can be reviewed outside of a meeting, reviewing them together as a team encourages questions and discussion around our revenue and spending.

2. Are we there yet?

Once we review our financial performance, we review our “major milestones”—the big tasks we had hoped to get done in the past month and our plans for the next month.

We discuss how various teams might be working with each other on different projects and talk about the specific milestones that we have planned. Are these still the tactics that we want to work on that will help achieve our goals? Do we need to shift priorities? Is there new learning and information that would have us change our schedule?

By reviewing major initiatives on a monthly basis, we can stay agile and make changes as needed. As we learn more about our customers and our market, we might shift strategies and develop new milestones.

3. Long range goals and strategy

Next, we review our long-range strategic goals. While this doesn’t change too often in our situation as an established company, new startups might shift their strategy frequently as they search for a business model that works.

For those early-stage startups, this step of the meeting may be the most important step and take the longest. For more established companies, this part of the meeting might typically only take a few minutes.

Instead of delving deep into a 40-page business plan document to review our strategy, we review our lean plan, or our one-page business plan (in LivePlan, it’s called the Pitch). It covers our company identity, the core problem we solve for our customers, our solution, competition, and sales and marketing strategy. It’s all on one page so it’s easy to read, review, and change quickly.

4. Issues to process

Finally, anyone on the team can bring forward any issues that they want to discuss. This could include new opportunities to consider, prioritization of product features, potential partnerships, or internal HR issues.

Everything is fair game and we try to come up with resolutions and next steps for any issue that’s brought up.

We’ve found that this type of open-ended discussion really helps generate new ideas and brings different perspectives from managers of different teams.

I believe that all companies would benefit from a monthly review of their business. These types of meetings keep everyone on the same page, help share information about progress, and turn planning into a tool that helps teams make informed decisions.

To make a monthly strategy meeting successful, you also need to follow a few guidelines:

1. Put the meeting on the calendar

It’s important to make it a formal event that’s on the schedule. It can’t be optional and it has to be at a regular time so that everyone always knows when the meeting is like, meeting can be scheduled on the 3rd Thursday of every month or 2nd Friday of the month.

2. Follow a repeatable agenda

While different topics will come up for discussion, it’s important that your plan review meeting has a repeatable agenda.

That means making sure that you have your numbers ready for review and that your team has updates on their goals.

3. Be prepared to change the plan

These plan review meetings aren’t just about staying the course and blindly following the plan. Instead, they are about adjusting the plan. Perhaps you’ll discover that you should be investing more in marketing, or that you’re going to be able to expand and hire faster than you originally planned.

The plan review meeting is about making adjustments to your goals and strategies based on what you’ve discovered in the past month.

Source: liveplan.com

Analysis of Supreme Court Judgment in Favour of Home Buyers

Analysis of Supreme Court judgment in favour of home buyers

by  Prithvi Raj Sikka   

on  21 August 2019

HON'BLE SUPREME COURT UPHELD THE CONSTITUTIONAL VALIDITY OF STATUS OF ALLOTTEES AS FINANCIAL CREDITORS UNDER INSOLVENCY AND BANKRUPTCY CODE 2016

The builders had filed spate of writ petitions in Hon'ble Supreme court of India . The Hon'ble Supreme court has taken up WP (Civil) No. 43 of 2019 titled as Pioneer Urban Land and Infrastructure Limited & Another versus Union of India &Ors. With other petitions which were dismissed on 09.08.2019.

Brief Facts

The builders had challenged the constitutional validity of amendment made in Insolvency & Bankruptcy Code 2016 (Hereinafter referred to IBC).

The following provisions of IBC were challenged:

1. Explanation to Section 5(8)(f):

'5. Definitions

In this part ,. Unless the context otherwise requires,-

(8) ' Financial Debt' means a debt along with interest, if any , which is disbursed against the consideration for the time value of money and includes-

(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;

Explanation- For the purposes of this sub-clause,-

(i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having commercial effect of a borrowing: and

(ii) the expressions, 'allottee' and the 'real estate Project' shall have the meanings respectively assigned in clauses (d) and ( zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);'

2. Section 21(6A)(b)

'21. Committee of Creditors

(6A) Where a financial debt-

(b) is owned to a class of creditors exceeding the number as may be specified , other than the creditors covered under clause (a) or sub-section (6), the interim resolution professional shall make an application to the Adjudicating Authority along with the list of all financial creditors, containing the name of insolvency professional , other than the interim resolution professional , to act as their authorized representative who shall be appointed by the Adjudicating Authority prior to the first meeting of the committee of creditors.

3. Section 25 A

'25A. Rights and duties of the authorized representative of financial creditors-

(1) The authorized representative under sub-section (60 or sub-section (6A) of section 21 or sub-section (5) of section 24 shall have the right to participate and vote in the meetings of the committee of creditors on behalf of the financial creditors he represents in accordance with the prior voting instructions of such creditors obtained through physical or electronic means.

(2) It shall be the duty of the authorized representative to circulate the agenda an minutes of the meeting of committee of creditors to the financial creditors he represents.

(3) The authorized representative shall not act against the interest of the financial creditor he represents and shall always act in accordance with their prior instructions;

Provided that if the authorized representative represents several financial creditors , then he shall cast is vote in respect of each financial creditor in accordance with the instructions received from each financial creditor, to the extent of his voting share.

Provided further if any financial creditor does not give prior instructions through physical or electronic means, the authorized representative shall abstain from voting on behalf of such creditor.

(4) The authorized representative shall file with the committee of creditors any instructions received by way of physical or electronic means, from the financial creditors he represents, for voting in accordance therewith , to ensure that the appropriate voting instructions of the financial creditor he represents is correctly recorded by the interim resolution professional or resolution professional , as the case may be.

Explanation- For the purposes of this section , the 'electronic means ' shall be such as may be specified.'

NCALT on 21st July 2017 in Nikhil Mehta &Sons(HUF)

versus AMR Infrastructure Ltd. Held home buyers are ' Financial Creditors' within the meaning of Section 5(7) of IBC. Hon'ble Supreme court passed an order in WP ( Civil) 74 of 2017 in case Chitra Sharma & Ors versus Union of India, in case of Jaypee Infrastructure Ltd. Appointed a representative of home buyers to participate meeting of the committee of creditors in order to protect their interest.

Hon'ble Supreme court held as under-

i. The amendment Act to Code (IBC) does not infringe Articles 14, 19(1)(g) read with Article 19(6) , of 300-A of the constitution of India.

ii The RERA is to be read harmoniously with the Code (IBC) as amended by the Amendment Act. It is only in the event of a conflict that code will prevail over the RERA. Remedies that are given to allottees of flat/ apartments are therefore concurrent remedies, such allottees of flat/apartments being in a position to avail of remedies under consumer protection Act, 1986, RERA as well as the triggering of the Code(IBC).

iii. Section 5(8) (f) as it originally appeared in the Code(IBC) being a residuary provision, always subsumed within it allottees of flat/ apartments. The explanation together with the deeming fiction added by the amendment Act is only clarificatory of this position of law.

Hon'ble Supreme court has directed all states/UTs to establish RERA an their appellate Authorities within 3 months.

Opinion

In view above discussion, The flat /apartment buyers have the following three remedies:

1. Home buyer can file the petition before NCLT under IBC Act against builder as financial creditor.

2. Before District Consumer Commission as per Consumer Protection Act, 2019 which has replaced Consumer Protection Act , 1986 . The Act has been notified on 9th August 2019 .

3. Before RERA . Even in RERA buyer can file complaint within five years in respect of defects in construction.

The analysis of Judgment in WP (Civil) No. 43 /2019 titled as Pioneer Urban Land and Infrastructure Limited versus Union of India dismissed on 09.08.2019

1. The legislation have buyers free play in the joints which must be given a certain degree of deference by the courts.

2. It can be seen that Insolvency committee found, as a matter of fact, that delay in completion of fats/ apartments has become a common phenomenon and that amounts raised from home buyers contributes significantly to the financing of the construction of such flats/ apartments. It was therefore important, therefore, to clarify that home buyers are treated as financial creditors so that they can trigger the code (IBC) under section 7 and have their rightful place on the committee of Creditors when it comes to making important decisions as to the future of the building construction company, which is the execution of the real estate project in which such home buyers are ultimately to be housed.

3. In real estate projects, money is raised from the allottee being raised against consideration for the time value of money.

4. The amount raised from allottes under real estate projects would, in fact, be subsumed within section 5(8)(f0 even without advertising to the explanation by the Amendment Act.

5. The deeming fiction that is used by the explanation is to put beyond the fact that allottees are to be regarded as financial creditors within the enacting part contained in section 5(8)(f0 of the code( IBC).

6. The alllottees/ home buyers were included in the main provision, i.e. Section 5(8)(f0n with effect from the inception of the Code (IBC) , the explanation being added in 2018 merely to clarify doubts that had arisen.

RERA versus IBC

1. Under Section 88, the provisions of TRTA are in addition to and not in derogation of the provisions of any other law for the time being in force. No similar Provision exists in the code(IBC).

2. Hon'ble Supreme court further stated that it is difficult to accede to arguments made on behalf of petitioners, that RERA is a special enactment which deals with real estate development projects and must, therefore, be given precedence over the code (IBC) , which is likely a general enactment dealing with insolvency generally. From the introduction of the explanation to Section 5(8)(f) of the Code ( IBC) came into force on 6th June 2018, it is clear that parliament was aware of RERA and applied some of the definition provisions so that they could apply when the code is to be interpreted.

3. It is clear that the code amended must be given precedence over RERA.

4. Even by a process of harmonious construction, RERA and the Code (IBC) must be held co-exist and in the event of a clash, RERA must give way to the Code. RERA, therefore, can not be held special statute ehich in case of a conflict, would override the general statute viz. the Code (IBC).

5. The code and RERA operate in completely different spheres. The code deals with a proceeding in rem in which the focus is the rehabilitation of the operate debtor by means of resolution plan so that the corporate debtor may be pulled out of the woods and may continue as going concern, thus benefitting all stakeholders involved. It is only as a last resort that winding up of the corporate debtor is resorted to, so that its assets may be liquidated and paid out in the manner provided by section 53 of the Code(IBC). On the other hand, RERA protects the interests of the individual investor in real estate projects by requiring the promoter to strictly adhere to its provisions.

Remedies for Home Buyers-

a. The remedies under RERA to allottees are additional and not exclusive remedies.

b. The allottees of fats/ apartments have concurrent remedies under the Consumer Protection Act, RERA as well as triggering of the Code (IBC).

c. On prima facie 'default' is made out on an application under section 7 of Code .we may mention here that once the prima facie case is made out , the burden shifts on the promoter/ real estate developer to pint out in their reply and in the hearing before NCLT, that the allottee is himself a defaulter and would, therefore, on a reading of the agreement and applicable RERA Rules and Regulations, not be entitled to any relief including payment of compensation and /or refund, entailing a dismissal of the said application. This the real estate developer may do by pointing out, for example, that the allottee who has knocked at the doors of the NCLT is a speculative investor and not a person who is genuinely interested in purchasing a flat/ apartment. They can also point out that in a real estate market which is falling, the allottee does not, in fact, want to go ahead with its obligations to take possession of the flat/ apartment under RERA but wants to jump ship and really get back, by way of this coercive measure , monies already paid by it.

Given the above , it is clear that it is difficult to accede to the petitioner' contention that wholly one sided and futile hearing will take place before the NCLT by trigger-happy allottees who would be able to ignite the process of removal of the management of the real estate management of the real estate projects and/or lead the corporate debtor to the death.

Key Provisions of Finance Bill (No.2), 2019 w.r.t Real Estate Transactions

Tax relief for affordable housing - Section 80EEA

Individual buyers (not owning any other property at the time of sanction of loan) can claim deduction for interest on home loan up to INR 150,000 provided that loan is sanctioned by financial institution during the period 1 April 2019 to 31 March 2020 and stamp duty value of the property does not exceed INR 45 Lakhs.

TDS on purchase of immovable property – Section 194-IA

Presently, buyer is required to deduct tax at source at 1 percent on the amount of consideration paid on purchase of immovable property. The term ‘consideration for immovable property’ is currently not defined. Therefore, it is proposed to include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee, or other charges of similar nature, which are incidental to the transfer of immovable property within the ambit of consideration for immovable property. This amendment shall come into effect from 1 September 2019.

Compliance of TDS by Individuals/ HUF not covered u/s. 194C or 194J - Section 194M

At present, an individual or HUF not subject to tax audit are not liable to comply with TDS provisions under section 194C or 194J. In order to fix this loophole, new section proposes to provide for levy of TDS on sum paid account of contractual work or professional fees at the rate of 5 percent where such payment exceeds INR 50 Lakhs in a year. For ease of compliance, individuals or HUFs shall be able to deposit the tax deducted using their PAN. It may be noted that proposed amendment will also be applicable where payment is made for personal purposes. This amendment shall come into effect from 1 September 2019.

TDS on withdrawal of cash - Section 194N

This section casts responsibility on Banking company, Cooperative society, Post office to deduct TDS at the rate of 2 percent upon payment of any sum or aggregate of sums in cash in excess of INR 1 crore. However, Bill does not clarify if such limit of 1 crore applies to each bank or bank accounts or aggregate of payments from all banks. Also, it has to be clarified that though cash withdrawals are not income, credit of TDS will be allowed.

Source: ICAI Journal

Long Awaited Ruling by NHB in the Interest of the Home Buyers

The National Housing Bank (NHB), the regulator for housing finance companies (HFC), has banned products which allow for builders to pay the interest in subvention schemes such as 25:75. “HFCs are advised to desist from loan products involving servicing of the loan dues by builders/developers etc. on behalf of the borrowers,” read the circular issued by the NHB, dated July 19.

NHB advises HFCs to stop funding interest subvention schemes

* NHB has advised HFCs to desist from offering retail loans involving schemes in which developers service loans on behalf of the borrowers. This stipulation will be effected only in cases wherein the HFCs are yet to commence disbursements.

* NHB has also advised HFCs to review existing products on the above lines. In the circular, NHB has reiterated that housing loan disbursements should be strictly linked to the stages of construction and no upfront disbursal should be made in case of incomplete/unconstructed projects.

* HFCs should have a well-defined mechanism for effective monitoring of the progress of construction of housing projects. HFCs should obtain consent of the borrower prior to release of payments to the developer, such payments being linked to stages of construction.
The subvention scheme allowed a buyer to purchase a property by paying a fraction of the property price. In the traditional home loan products, the bank hands over the loan amount to the builder as the construction of the property progresses. Meanwhile, the home buyer starts paying his equated monthly instalments (EMI) to the bank. The subvention scheme, on the other hand, gives a large part of the loan amount to the builder, whothen pays the interest on loan availed every month to the HFC, till the buyer gets the possession of the property.

It was a win-win situation for all, thus far. Property buyers were told that they need not worry about EMI payments till they get the possession of the house. Those already shelling out rent did not need to worry about paying both the rent (for the place where they stay) as well as the EMI for the under-construction property. HFCs were thus getting traction in an otherwise depressed property market. Funding starved developers got both cheap funding and property sales.
However, there are a few issues that cropped up in this arrangement. What if the developer stops servicing the loan? What if the project is delayed? Property buyers in subvention schemes are co-borrowers and so If the developers do not service the loan or defaults even once, the liability passes on to the home buyer. More importantly, their credit scores go for a toss, making them ineligible for loans in the future

There were cases of developers using the funds received for purposes other than constructing homes that they sold. These would include funding land acquisition, using the amount for some other projects or even taking it for personal reasons.

However, after the introduction of the Real Estate Regulatory Authority Act (RERA), many of the malpractices pertaining to the misuse of funds have been curbed

In 2013, the Reserve Bank of India had clamped down on banks to stop upfront disbursement to developers for under-construction or greenfield projects offering such schemes, and required banks to stick to construction-linked disbursements. Some popular schemes included 20:80 or 25:75 wherein buyer paid 20 per cent upfront while builder paid the remaining 80 per cent to HFCs/banks on behalf of buyer till possession.

Now, the HFCs have been brought under the perview of RBI in the recent budget announcement and so have been cautioned against funding developers promoting subvention schemes. In the first place, this protects the home buyers against the dreaded “stuck project” syndrome. It will also further bring in more transparency and discipline within the Indian housing market and everyone especially NRIs can now hope to deal with only financially strong and ethical developers going forward.
HFCs have been directed to have a “well-defined mechanism” in place to monitor the construction progress of housing projects they grant home loans for. The progress of projects they invest in via home loans will be monitored by the lending HFCs before loan disbursements. This will prompt developers to adhere to deadlines.

Overall with this new regulation, only those genuine developers will now come forward to launch projects who will have a clear visibility on their financial closures, implying that fly-by-night developers will now largely vanish.

New Ruling by NHB to Safeguard Home Buyers

GST Rates Applicable to Maintenance Charges of Housing Societies

Update on July 23, 2019:

GST on maintenance charges to be 18% for flat owners paying over Rs 7,500

Flat owners will have to pay GST at 18%, if their monthly contribution to the residents’ welfare association (RWA) exceeds Rs 7,500, the Finance Ministry said, on July 22, 2019. As per the rules, RWAs are required to collect GST on monthly subscription/contribution charged from its members, if such payment is more than Rs 7,500 per flat per month and the annual turnover of RWA by way of supply of services and goods exceeds Rs 20 lakhs.

In a circular issued to field offices on how the RWA should calculate GST payable, the Finance Ministry said: “In case the charges exceed Rs 7,500 per month per member, the entire amount is taxable. For example, if the maintenance charges are Rs 9,000 per month per member, GST @18% shall be payable on the entire amount of Rs 9,000 and not on (Rs 9,000-Rs 7,500) = Rs 1,500,” it said.

On how the tax liability would be calculated for a person who owns two or more flats in the housing society or residential complex, the Ministry said in such cases the ceiling of Rs 7,500 per month per member shall be applied separately, for each residential apartment owned by him. The Ministry further clarified that RWAs are entitled to take input tax credit (ITC) of Goods and Services Tax (GST) paid by them on capital goods (generators, water pumps, lawn furniture, etc.), goods (taps, pipes, other sanitary/hardware fillings, etc.) and input services such as repair and maintenance services.

When is GST applicable on maintenance charges?

Under the earlier service tax regime, housing societies were required to register themselves under the law of service tax, if the aggregate of maintenance charges levied by the housing society exceeded Rs 10 lakhs in a financial year. However, under the Goods and Services Tax (GST) regime, this limit has been doubled to Rs 20 lakhs. So, if the aggregate of maintenance charges levied by the housing society exceeds the threshold of Rs 20 lakhs in a financial year, it has to register itself under the GST laws and obtain a registration number.

While computing the limit of Rs 20 lakhs, even the exempt items like recovery of property tax and electricity charges from the member, are to be taken into account. So, a housing society has to collect GST from its members, if the aggregate of the charges during a financial (whether subject to GST or not) exceeds Rs 20 lakhs. Even though the threshold limit for registration is Rs 20 lakhs for a housing society, it is not required to levy GST, if the amount of maintenance charge for each of the flat or office does not exceed Rs 7,500 for a month.

Hence, for the levy of GST from its members on maintenance charges, the housing society has to satisfy two conditions:

The aggregate of the charges levied by the society should exceed Rs 20 lakhs in a financial year and

The amount of the monthly maintenance charge for the particular flat or office should exceed Rs 7,500.

It may therefore be possible that a society may not levy GST in case of smaller flats/offices, whereas at the same time, levy it in respect of other flats/offices of bigger area, in case the maintenance charges are on the basis of the area of the flat/office.

On what component of maintenance charges is the GST levied?

It is not that the society has to levy GST on all the components billed in the invoice to the members. The housing society cannot levy GST on charges which are in the nature of reimbursement of expenses incurred by the society and recovered from members. These may include various taxes and utility payments made by the housing society on behalf of the members like municipal taxes, property tax, water bills, non-agricultural land tax, electricity bills for common areas, etc. Likewise, the contribution towards the sinking fund, is also excluded from the scope of GST. However, the housing society has to levy GST on the contribution made by the members towards the repairs funds.

GST rates, input tax credits and the reverse charge mechanism

Against the 12 per cent rate under the service tax regime, presently housing societies have to levy GST at 18 per cent, on the maintenance charges recovered from its members. The housing society can avail of input credits, for the GST paid by it on various supplies received by it – for example, services like security, maintenance of lift and premises, or payment of audit fees, etc.

Although the society can avail of the input credit for such items, it cannot reduce the rate of GST being charged to its members. The society is also required to pay GST under the reverse charge mechanism, in case it is registered under the GST, on all the services or goods received by it from unregistered suppliers. The society, however, is entitled to claim set-off of the GST paid on such supplies, against its GST liability with respect to maintenance charges. (Note: Presently the mechanism of reverse charge mechanism has been deferred till September 30, 2019. Hence, the impact of such levy will not be there, till it is implemented.)

It may also happen that the society may be paying different GST rates, for the goods and services purchased by it, while the GST it charges from its members will be at 18 per cent only. While the housing society cannot reduce the rate at which it will levy GST on maintenance charges from its customers, it can reduce its maintenance charges, to pass on the benefits of input credits available to it. The exact benefit of lower maintenance charges, depends on the input credit available, as well as its liability under the reverse charge mechanism, as and when it is implemented.

With the increased frequency of having to file returns under the GST regime, the overall cost of compliance has already increased for the housing societies, especially the bigger ones. Due to the higher rate of GST, as compared to the rate under the service tax regime, as well as the reverse charge mechanism and increased compliance costs, the monthly outgo of flat owners will increase, if the society is registered under the Goods and Service Tax law.

Please click for a detailed circular http://www.cbic.gov.in/resources//htdocs-cbec/gst/circular-cgst-109.pdf;jsessionid=96A26C7BE3D2BFC0999C9825D5A623DF

CREDAI Karnataka - GST Clarifications issued in the interest of Home Buyers

Simple flow chart for understanding GST on Residential Properties w.e.f 1st April 2019