Navigating Revenue Recognition and Tax Implications in Real Estate with Ind AS
This article delves into the complexities of revenue recognition for real estate companies under Indian Accounting Standards (Ind AS), focusing on the point of transfer of control and the recognition of deferred tax assets (DTA) on tax losses.
Real EstateInd AsRevenue RecognitionDeferred Tax AssetReraReal EstateSep 01, 2025
In India’s evolving corporate landscape, where financial transparency and regulatory compliance are under growing scrutiny, the recognition of deferred tax asset (DTA) has emerged as a critical area of focus. While as per Ind AS 12, Income taxes, the criteria for recognising DTA on unused tax losses and tax credits are aligned with those for recognising DTA on deductible temporary differences, such recognition is inherently complex, highly judgemental, and predicated on forward-looking assumptions, making it particularly challenging for loss-making entities.
This edition of the Accounting and Auditing Update (AAU) features an article that discusses the key aspects of accounting for real estate companies in India under Ind AS, focusing on the point of transfer of control and separation of significant financing components in such arrangements. It highlights the importance of understanding the legal and regulatory frameworks that govern these transactions, such as RERA, and the need for meticulous documentation and compliance.
Another critical aspect covered in this edition is the recognition of deferred tax assets (DTAs) arising from the carry-forward of unused tax losses. The article offers insights into the key considerations for recognising DTAs, including the assessment of future taxable profits, the likelihood of utilising the tax losses, and the impact of changes in tax rates or tax laws. This is particularly relevant for loss-making entities, which must navigate the complexities of forward-looking assumptions and the potential for significant financial implications.
As always, we have included a digest of recent regulatory updates in India and internationally. These updates are essential for real estate companies to stay informed about the latest changes in accounting standards, tax regulations, and other relevant laws that may affect their operations and financial reporting.
We would be delighted to receive feedback or suggestions from you on the topics we should cover in the forthcoming editions of AAU. For more information on this update, please write to [email protected]. We do hope you find this Update informative and useful.
Frequently Asked Questions
What are the key challenges in applying Ind AS to real estate transactions?
The key challenges include the complexity and diversity of real estate arrangements, the need for judgment in recognition, measurement, and disclosure, and the influence of legal formalities, extended construction timelines, and compliance with RERA.
How does the Real Estate (Regulation and Development) Act, 2016 (RERA) impact revenue recognition?
RERA imposes specific requirements on real estate transactions, including the point of transfer of control and the timing of revenue recognition, which must be carefully considered to ensure compliance and accurate financial reporting.
What are the criteria for recognising deferred tax assets (DTA) on unused tax losses under Ind AS 12?
The criteria for recognising DTAs on unused tax losses are aligned with those for recognising DTAs on deductible temporary differences. Recognition is complex and judgmental, requiring forward-looking assumptions about future taxable profits and the likelihood of utilising the tax losses.
Why is the recognition of DTAs particularly challenging for loss-making entities?
For loss-making entities, the recognition of DTAs is highly dependent on forward-looking assumptions about future taxable profits and the potential changes in tax rates or tax laws. This makes the process highly judgmental and complex.
What recent regulatory updates are important for real estate companies to be aware of?
Recent regulatory updates may include changes in accounting standards, tax regulations, and other relevant laws that affect real estate operations and financial reporting. It is essential for companies to stay informed about these updates to ensure compliance and financial transparency.
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