Naresh Mehta and Hiral Gangwani are civil engineers who established a partnership firm (not LLP) New Home Constructions (NHC). Based in Vadodara,…

Naresh Mehta and Hiral Gangwani are civil engineers who established a partnership firm (not LLP) New Home Constructions (NHC). Based in Vadodara, Gujarat, their first project “Mangala Vilas" is a gated community that exclusively houses senior citizens. The project location is on the outskirts of Vadodara, almost 18 kilometers from the city. It will be housed in 2 buildings with 30 flats in total. Each will be a 2-bedroom flat, with amenities to suit the needs of senior citizens, like anti-slip flooring, emergency alarms connected to security, clinic and ambulance facility, wide staircase, lighting etc. The construction and utilities are being offered keeping in mind those challenges that senior citizens generally encounter with advancing age. This is a unique project in Vadodara as there is no other housing development for senior citizens in the city. The project is advertised as “Enjoy your sunset years in the lap of nature!" Pre-launch bookings opened in January 2023. Each unit is priced at 30 lakh, with 10% special discounts being given to the pre-launch customers. Being their very first project, without having prior track record as well as due to the unique nature of the project itself, customer response has been very enthusiastic during the pre-launch sales. People were not willing to trust a start up in the real estate sector. Cost management in pre-launch phase of Project Mangala Vilas Being their first venture, the partners have sought the help of financial advisor, Vikrant Soni its since inception. Vikrant Soni is a certified management accountant, who runs his own consultancy V S Advisory Services (VSAS). Given the tepid response from the customers, the partners are worried about the profitability of their venture. Refer to Annexure 1, for his email advising Naresh and Hiral on cost management during this phase. Following Vikrant's advice Naresh was keen to immediately make requisite changes to the blueprint. Hiral was hesitant to make immediate changes and wants to wait until the construction phase begins. It is when construction is underway that majority of the costs are going to be actually incurred. Therefore, she wishes to wait for actual construction to begin before making any changes to the current blueprint. On January 28th, 2023, they approach Vikrant once more to resolve their difference on when to make changes to the project's blueprint. After finalizing all the details, regulatory approvals were received, and construction began in April 2023. Cost management in under-construction phase of Project Mangala Vilas From April 2023 onward, construction of project “Mangala Vilas” started in full swing. Bookings for the project slowly gained traction, few flats were sold by end of FY 2023-24. In the next few months, due to word of mouth and aggressive advertising, many more flats sold over a period of time were in FY 2024-25 and FY 2025-26. Construction was completed in March 2025. In order to maintain the costs, the partners on the advice of Vikrant Soni, have started maintaining detailed cost records. Each month NHC compared the actual costs incurred with the budgets. At the beginning of each year, the partners have drawn up detailed budgets, especially for materials, labour and overhead costs. On comparing actual vs budgets, where there has been an adverse variance, costs are regulated in order to meet the budget. For example, where the partners find that during the month the actual costs of materials like cement, bricks etc. have been more than budgeted, they change the quantity / quality of the material used in order to remain within the budget. Similarly, cheaper labour was used, when possible, in order to manage the costs. Hence, the budget standards that NHC sets for the year were rigorously maintained and actual costs were regulated by managing the process with cheaper alternatives when necessary. At times, the quality of the work was slightly compromised in order to remain within budgetary constraints. As part of the regulations, NHC had to periodically get certifications from appropriate authorities for conformance to quality standards. Despite this, after taking possession of the flat, there were few customer complaints about non-conformance to quality. In some genuine cases, NHC had to do some rework in order to match the quality standard it had committed to deliver. Income of partnership firm from the financial years 2023-24 to 2025-26 NHC hired tax advisors Chand Associates, to file its income tax returns. Since FY 2023-24, NHC has opted to declare its income according to presumptive taxation provisions contained in the Income Tax Act. Refer to Annexure 2 for details about the turnover and income offered for taxation from FY 2023-24 to FY 2025-26. Expansion plans to launch Project Happy Years By the year FY 2026-27, the market is now more aware of the concept of senior citizen communities. Demand for such houses has been picking up in the last one year. During the course of FY 2026-27, most of the flats of Project Mangala Vilas were getting sold out. Therefore, NHC now plans to launch Project Happy Years in another area of Vadodara. The project would be for 80 flats to be constructed at an estimated cost of 40 crores. NHC started construction of Project Happy Years and incurred some expenses towards it during FY 2026-27. These were incurred from borrowings that NHC had taken for the firm as a general (refer to Annexure 3 for further details). As part of this project, NHC has placed an order for the New Crane [LTM 0150-5.2E] with W Wagen, a German firm. The delivery of Crane is expected after three months. W Wagen has quoted rate of € 42,500. It is anticipated that the exchange rate will appreciate by 4% over the three months period and in order to protect the euro payments after three months, Finance manager of the NHC has decided to hedge the risk involved in foreign currency transaction i.e. either Forward cover or Money market cover. The relevant spot and forward rates are: Spot 3 month's Forward ₹/€ 90.15/90.50 92.20/92.60 The borrowing rates in India and Germany are 8% and 5.5% respectively and deposit rates are 6.5% and 4% respectively. Agreement with Sunrise Apartments, Vadodara regarding Project Happy Years While constructing the apartments at Project Happy Years in Vadodara, NHC received a request from Sunrise Builders, who were also constructing a separate housing project next to NHC's construction. NHC had the approval from Vadodara municipality to build 10 floors of apartments. However, if 10 floors were to be constructed, many of the apartments within the housing project Sunrise Apartments would not get proper lighting into their flats. Sunrise Apartments are luxury houses, for which the natural surroundings and aesthetics need to be maintained in order to attract buyers. So, after some discussion, both builders NHC and Sunrise Builders reached an agreement that NHC would build only 8 floor apartments instead of 10. For this Sunrise Builders would compensate NHC by paying them 2 crores for refraining them from building up to 10 floors. NHC agreed to the request. As per the agreement, NHC received the compensation of 40 lakh in December 2026 from Sunrise Builders. Due to the special features added to the flats and living spaces within the community, both Project Mangala Vilas and Project Happy Years aim to specifically enhance the quality of living of senior citizens. Many of these features cannot be found in housing communities that are built for people of every age group. This makes the business model of NHC unique. Annexure 1 January 25th, 2023 email Vikrant Soni/ Certified Management Accountant, VSAS From: "Vikrant Soni"; Sent: 25th January, 2023 To: "Naresh Mehta"; "Hiral Gangwani" Cc: Subject: Cost management for Project Mangala Vilas Date: 25th January, 2023 Naresh and Hiral, Let me summarize the details of our telephone conversation that we had yesterday. You have prepared the blueprint design for your flats based on which the construction will begin. Almost 80% of your construction costs get committed at this stage. Until date, no flats have been booked since the start of your pre-launch sales. This being your first venture, customers are wary of making any booking since you do not have any prior track record. You do expect low demand for the flats until construction begins, by which time all regulatory approvals would have been obtained. You plan to start your construction in April 2023. You would like to earn a profit of 2.4 lakhs per flat (8% of the gross sale value per flat). Due to the uniqueness of the concept of senior citizens living, which is yet to find acceptance within society, you will be unable to charge higher than 30 lakh per flat. Gaining traction for sales will take some time. At the same time, you are facing margin pressure due to rise in material and labor costs on account of inflation. I suggest that you re-look at the blueprint design for the flat before you even approach for regulatory approvals. Based on your expertise, find out which features can be modified or completely eliminated in order to reduce costs. Keeping in mind the needs of your target customers, being senior citizens, certain features like anti-slip flooring, emergency alarms, clinic and ambulance facilities, wide staircase, lighting etc. may be essential features. At the same time, there may be other features such as size of balconies, closets, designer features on walls etc. which can be compromised or eliminated altogether. The key is to identify non-essential or wasteful features that can be modified or eliminated without adversely affecting the flat's utility and customers' expectations. This will help you reduce costs, maintain the demand for flats and achieve your profit targets. Hope this gives a broad approach you can take to achieve your expected profits. Please do revert for clarification. With regards, Vikrant Annexure 2 Turnover and income offered for taxation from FY 2023-24 to FY 2025-26 Below are details of the turnover of the firm and the amounts collected for the financial years 2023-24 to 2025-26 Particulars FY 2023-24 FY 2024-25 FY 2025-26 Total turnover (*) 98,00,000 1,90,00,000 2,00,00,000 Amount received through prescribed electronic modes (on or before due date of filing return) 95,00,000 1,85,00,000 1,95,00,000 Income offered for taxation 5,94,000 11,50,000 10,00,000 From the financial year 2023-24 onwards, NHC has opted to offer income as per presumptive taxation scheme for which it is eligible under the Income Tax Act, 1961. Annexure 3 Expenses incurred for Project Happy Years and details of general borrowings by NHC NHC had incurred expense of 5 crores on July 1st, 2026 and further expense of 5 crores on 1st December 2026. The details of general borrowings by NHC and interest payment thereon are: Particulars Average Balance ₹ crores Interest ₹ crores Long term loan @10% 10 1 Working capital loan 5 0.3 Total 15 1.3