The 70%-account: a CA certificate every withdrawal, an audit every year

Opening the account is only the first step

Many builders treat RERA compliance as complete once they open a designated bank account and deposit 70% of buyer collections. That is only the entry point. The obligation recurs whenever money is collected, whenever money is withdrawn, every quarter when project progress is updated, and every year when the account is audited.

Section 4(2)(l)(D) of the Real Estate (Regulation and Development) Act, 2016 requires 70% of amounts realised from allottees, from time to time, to be deposited into a separate scheduled-bank account. It then places a separate restriction on withdrawals: every withdrawal must be proportionate to the project’s percentage of completion and supported by certificates from an engineer, an architect and a chartered accountant, all in practice.

A certificate obtained after the money has left the account does not convert the earlier withdrawal into a compliant one. The statutory condition applies when the withdrawal is made. The correct operating model is therefore:

Collection → 70% deposit → cost and progress measurement → three professional certificates → withdrawal → quarterly reporting → annual audit.

What the 70%-account actually holds

The account must be a separate account maintained with a scheduled bank and identified with the registered real-estate project. Its funds can be used only for the land cost and construction cost of that project. They cannot become general working capital merely because the promoter owns both the project and the receiving company. [RERA Act, 2016, s.4(2)(l)(D).]

Where a development is registered phase-wise, the bank and accounting structure should preserve phase-level traceability. Operational sub-accounts may be maintained where permitted by the applicable banking and Authority framework, but they must not destroy the statutory project or registered-phase identification of collections and withdrawals. [RERA Act, ss.3 and 4(2)(l)(D); applicable AP RERA or TS RERA registration conditions.]

What “70% of amounts realised” means

The deposit is not 70% of profit, estimated margin, unsold inventory value or the amount remaining after paying marketing expenses. It is 70% of the amounts actually realised from allottees for that registered project, from time to time. [RERA Act, s.4(2)(l)(D).]

Examples include:

• A buyer pays a ₹5 lakh booking advance: ₹3.5 lakh is attributable to the 70% deposit requirement.
• A buyer pays a ₹10 lakh construction-linked instalment: ₹7 lakh must enter the separate account.
• A lender disburses a buyer’s home-loan instalment directly to the promoter: it remains an amount realised from the allottee’s transaction and must be captured in the project collection reconciliation.
• A buyer makes a part-payment against an outstanding demand: the 70% requirement applies to the amount actually received, not the full invoice value.
• On cancellation, the original receipt, refund and any retained amount must be separately reconciled. A credit transferred to another unit or adjusted against another project should not be silently netted off; the records must show where the original realisation arose and whether any amount continues to belong to the registered project.

The phrase “from time to time” makes this a continuous control. A builder cannot deposit a convenient lump sum at quarter-end if earlier collections were received and used elsewhere in the meantime. [RERA Act, s.4(2)(l)(D).]

The withdrawal loop

Step 1: Update cumulative project cost

Before seeking a withdrawal, the promoter should update construction cost incurred to date and land cost incurred to date. The working should be cumulative and supported by invoices, measurement records, payment evidence, contracts and the approved project-cost statement.

“Incurred” should not become a loose estimate. Invoices recorded but unpaid, advances to contractors, disputed bills, retention money and related-party charges must be separately identified so that the certifying professionals can determine what the applicable certificate permits. [RERA Act, s.4(2)(l)(D).]

Step 2: Establish physical completion

The engineer in practice determines the project’s physical progress using site measurements, approved plans, work completed and the relevant project components. The percentage should be capable of reconciliation with the stage reported on the AP RERA or TS RERA portal. [RERA Act, ss.4(2)(l)(D) and 11(1); applicable AP RERA/TS RERA quarterly-progress requirements.]

Step 3: Reconcile technical and financial progress

The architect in practice certifies completion with reference to sanctioned plans, project stages and actual work. The financial records must then be compared with both the engineer’s physical percentage and the architect’s completion certification.

A cost ledger showing 55% expenditure while the site shows 30% progress requires investigation. It may reflect mobilisation advances, premature billing, material purchases, cost overruns or incorrect allocation from another project. Certification is not a clerical reproduction of the builder’s ledger. [RERA Act, s.4(2)(l)(D).]

Step 4: The CA computes the permissible withdrawal

The independent chartered accountant in practice verifies the cumulative collections, required deposits, project costs, prior withdrawals and supporting professional certificates. The CA then certifies whether the proposed withdrawal keeps cumulative withdrawals within the amount proportionate to the certified percentage of completion. [RERA Act, s.4(2)(l)(D).]

Consider a project with an eligible project cost of ₹10 crore and certified physical completion of 40%. The cumulative withdrawal ceiling is ₹4 crore:

₹10 crore × 40% = ₹4 crore

If ₹3.5 crore has already been withdrawn, the maximum further withdrawal at that stage is:

₹4 crore − ₹3.5 crore = ₹0.5 crore

The promoter cannot withdraw ₹1 crore merely because the separate account contains that amount. The balance in the bank is not the withdrawal entitlement; certified completion determines the ceiling. [RERA Act, s.4(2)(l)(D).]

Step 5: Submit the certificates before release

The engineer’s, architect’s and CA’s certificates should be completed and submitted in the form and manner accepted by the bank and the applicable Authority before funds are released. The promoter should retain the complete certificate set, bank request, bank statement and utilisation trail for the annual RERA audit. [RERA Act, s.4(2)(l)(D); applicable AP RERA/TS RERA forms and registration conditions.]

The annual audit is a separate obligation

The proviso to section 4(2)(l)(D) requires the promoter to have the project accounts audited within six months after the end of every financial year by a chartered accountant in practice and to produce a duly certified and signed statement of accounts.

The auditor must verify two distinct matters:

• Amounts collected for the particular project were utilised only for that project.
• Withdrawals complied with the proportion linked to the project’s percentage of completion.

This is not replaced by the company’s statutory audit under the Companies Act or by a tax audit under the Income-tax Act. Those engagements have different objectives, scopes and reporting formats. The RERA audit must examine the registered project, its separate account, its collection trail and every withdrawal cycle. [RERA Act, s.4(2)(l)(D), proviso.]

The annual statement must be filed or uploaded as required by the applicable AP RERA or TS RERA process. An adverse finding can support scrutiny or suo motu action by the Authority. Contravention for which no separate penalty is provided may attract section 61, while failure to comply with an Authority’s order can escalate under section 63. Section 59 concerns non-registration contraventions and should not be inaccurately treated as the ordinary penalty provision for every account irregularity. [RERA Act, ss.59, 61 and 63.]

The project ledger should also reconcile with GST returns, income-tax reporting, TDS records and revenue-recognition workings. Material inconsistencies can create questions from RERA, tax authorities, lenders or transaction reviewers even though each regime applies its own legal tests.

Independence is substantive, not cosmetic

The certifying CA must be in practice and must exercise independent professional judgment. An employee of the promoter cannot perform that role. A related-party relationship, direct financial interest, management responsibility, excessive dependence or a significant self-review threat may also impair the engagement under the ICAI Code of Ethics. Companies Act, 2013 sections 2(76) and 141 provide relevant related-party and auditor-independence principles by analogy.

A builder’s regular compliance CA is not automatically disqualified merely because the firm handles GST, income tax or routine accounting. The problem arises when the CA is effectively part of management, prepares the underlying records without independent review, is financially dependent in a manner that compromises objectivity, or has a prohibited relationship with the promoter.

Similarly, the company’s statutory auditor is not automatically incapable of issuing a RERA certificate. The firm must separately evaluate eligibility, prohibited services, self-review threats and safeguards under the Companies Act and ICAI Code of Ethics. The builder should document that evaluation rather than assuming that any CA signature is sufficient.

Three common failures—and their price

1. Withdrawing first and “regularising” later

The breach occurs when money leaves without the required prior certification. A backdated or later certificate does not change the transaction date. The annual auditor must compare withdrawal dates with certificate dates and report non-compliance where appropriate. [RERA Act, s.4(2)(l)(D) and its proviso.]

2. Temporarily funding another project

Using the separate-account money for another site, land parcel, group company or promoter obligation is a direct project-use breach, even if management intends to return it shortly. Section 4(2)(l)(D) allows use only for that project’s land and construction cost. Exposure may arise under section 61 and, after an Authority direction, section 63 for continued non-compliance.

3. Using a non-independent certifier

A signature may appear complete on its face, but an independence defect can undermine the certificate’s reliability. The annual auditor may qualify the statement or report the weakness, and lenders, landowners and buyers may treat the certification as unreliable. Eligibility and independence should therefore be checked before the first withdrawal, not after a due-diligence query. [RERA Act, s.4(2)(l)(D); ICAI Code of Ethics; Companies Act, ss.2(76) and 141 by analogy.]

FAQs

How often is a CA withdrawal certificate required?

For every withdrawal from the separate account. The Act does not convert the requirement into a monthly, quarterly or annual certificate merely because withdrawals happen frequently. Builders can reduce administration by batching payment requirements, but each release must remain covered by the engineer’s, architect’s and CA’s certification. [RERA Act, s.4(2)(l)(D).]

What if collections are ahead of physical progress?

The excess remains in the separate account until certified progress supports further withdrawal. Strong sales do not increase the completion-linked ceiling. The promoter must plan outside working capital accordingly rather than using protected buyer collections prematurely. [RERA Act, s.4(2)(l)(D).]

Can one CA certify multiple projects of the same builder?

Yes, provided the CA remains eligible and independent and maintains project-wise records, calculations and certificates. Collections, costs, prior withdrawals and completion percentages cannot be pooled across registrations. [RERA Act, s.4(2)(l)(D); ICAI Code of Ethics.]

Does a delayed annual audit automatically attract a fixed penalty?

The delay is a statutory contravention because the proviso requires audit within six months of the financial year-end. Penalty is not a self-calculating late fee under section 4 itself; the Authority must proceed under the applicable enforcement provision. Section 61 may apply where no separate penalty is prescribed, and section 63 may apply if an Authority’s order is disobeyed. [RERA Act, ss.4(2)(l)(D), 61 and 63.]

Harun Raaj & Associates, Visakhapatnam, provides one integrated RERA-account engagement covering monthly project-cost tracking, quarterly certification and progress-reporting support, and the annual audit under the proviso to section 4(2)(l)(D).

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