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Insertion in Scope of supply making services of Societies/ RWA ( Resident Welfare Associations) taxable

Section 7 (1) (aa) was inserted with retrospective effect from 1-7-2017 in CGST ACT to clarify that expression ‘supply’ includes activities/transactions by a person other than individual to its members or constituents for cash, deferred or other valuable consideration. Recent order no. MAH/AAA/ RS-SK/28/2020-2021 passed by Appellate Authority for Advance Ruling in a petition filed by Apsara Co-operative Housing Society Ltd. it was held that activities such as obtaining conveyance from builder, managing, maintaining and administering property of society, raising funds for achieving objects of society can be considered as rendering of supply of services to its members as per section 7 CGST Act. This insertion was introduced to remove ambiguity on taxability of services of housing societies.

Taxability, exemptions and rates

Exemption is provided upto Rs 7500 per month per member in case a society sources goods and services from third person for common use of its members. Eg (payments to security, cleaners, accountants etc). Thus the exemption is not applicable to receipts such as parking charges, transfer charges, non-occupancy charges and interest on delayed payments etc. which are not in nature of goods and services procured from third party for common use of members.

Services provided by the Central Government, State Government, Union territory or local authority to a person other than business entity, is exempted from GST. So, Property Tax, Water Tax, if collected by the RWA/Co-operative Society on behalf of the MCGM from individual flat owners, then GST is not leviable.

GST payable only if aggregate turnover exceeds Rs  20 Lakhs:  

If a person owns more than one residence in a society, then a ‘separate’ ceiling of Rs 7500 is considered as the second unit also gets an individual exemption of Rs 7500.

There is an exemption if the annual aggregate turnover of the housing society is not over Rs 20 lakh.

Thus, for GST to apply, two criteria must be met.

Annual turnover of a housing society Monthly maintenance charge GST
₹20 Lakh or less ₹7500 or less Exempt
₹20 Lakh or less More than ₹7500 Exempt
More than ₹20 Lakh ₹7500 or less Exempt
More than ₹20 Lakh More than ₹7500 Applicable

Rate of Tax: Tax is payable @18% on the entire taxable proceeds. Example in cases where monthly proceeds exceed are 8000 Rs, GST is payable on entire 8000 Rs and not just on 500 Rs as clarified by CBI & C circular dated 22-7-2019.

GST on repairs and sinking fund collections:  Corpus, contribution to repair fund and sinking fund collections are viewed as advance for future contingencies which may lead to rendering of services and hence are treated as taxable as well. There are few contrary advance rulings where the view taken is that these do not lead to supply of services and hence should not be taxable. My personal view is that a co-operative society collects funds from its members to be ready with the reserves when huge repairs need to be undertaken. Many societies contribute heavily to repair funds to be future ready and as such there is no service involved by way of value creation/addition. Also if we compare this entry on the monthly maintenance bill with others, all the others that are taxable also have associated input tax credit opportunity. This collection because it merely a deposit, taxing this would mean taxing non profit making societies @18 % without any input tax credit. In essence this is robbing the middle class of 18% on its own sinking fund and repair fund contribution and on the principle component of the deposit. Also given that the corpus and sinking fund contributions are mandatory in nature, taxing these would mean it is mandatory to pay 18% tax on a part of your funds. One would really wish that the GST  council looks at the true nature of this deposit and comes up with a clarification on this particular issue. It would still be acceptable if the interest earned by society from the repair and sinking fund deposit are charged instead of the principle.

Registration requirement : A Co-operative Housing Society or Residential Welfare Association who’s Turnover (collection money) crosses Rs 20 Lakhs per annum would become liable for Registration under GST and should charge GST (CGST + SGST) from its members. Such society would be required to maintain books of accounts as required under GST and file periodic GST returns as well. Such record maintenance and return filing will in turn inflate the maintenance bill by the amount that the society may pay to hire a GST consultant/practitioner.

Wish someday central and state governments validate some of the provisions they impose not only looking at their revenue targets but also keeping larger public good in mind.

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12 Comments

  1. K.Nanda says:

    Society has crossed exemption limit of 20 lakhs but there are 3 types of flat two type of flats monthly bill is more than Rs. 7500 , but other type of flat pays less than Rs. 7000/- what will be the Scenario?
    Is the society eligible for exemption from GST?

    1. CMA Samit Thakur says:

      Hi Mr. K. Nanda,

      In your case society has crossed the 20 lakh ceiling and hence will be subject to GST as it has crossed the turnover criterion.

      From the monthly collections exemption of 7500 per month is given for the payments that society may be doing for sourcing goods/services for common benefit of its members ( example payment to vendors like cleaning agency, security, accountants etc). the maintenance collections like parking charges, non occupancy charges are non exempt and the 7500 limit does not apply to these collections within the bill.

      From differentiation in monthly maintenance bills you will have to separate bracket the 3 different flats and measure the exemption applicability. Point to note here is that for some payments like parking charges/ non occupancy charges or transfer charges collections, there are no exemption and these will be charged to GST without any exemption applicability once the turnover crosses 20 lakhs.

      Hope this clarifies your query.

      Regards,
      Samit Thakur
      9920034918
      https://ssthakur.co.in/

  2. SANMIT SHAH says:

    Our Society maintenance bill per month is around 5100/-.
    We are planning to collect Rs. 300/- per month towards festival celebration.
    Will GST be leviable on the members?
    Ours is a society of around 200 members and we are registered for GST. We are collecting GST from members for services rendered like parking charges, late payment etc. and paying it regularly to the Govt.
    Please revert to my query above at the earliest….
    Thank you

    1. CMA Samit Thakur says:

      Dear Reader,
      In this case festival collections are leviable to GST as service charges collected by Society for providing members with some common services in form of food and entertainment on account of the festival. However based on the amounts mentioned by you, the society would fall in the exemption bracket and hence you would not need to charge GST.

      For further questions feel free to contact me @9920034918

      Regards,
      Samit
      website – https://ssthakur.co.in

  3. Lakshminarayan says:

    Hi Samit,
    If the association collects money from members to celebrate the festivals say Rs.1000 from eacah member and spends only Rs.500 per member( average). whether the entire amount is liable for GST or only 500/-. what if the association does not refund the unspent amount of Rs.500 to its members.

    1. CMA Samit Thakur says:

      Dear sir,

      In case of festival collections Society/association would pay to some third party for purchasing certain goods and services for common benefit of the members and hence there is no exemption to this collection and would be included in the overall ceiling to perform the taxability test irrespective of the amount refunded.

      Samit

  4. Rajashekar N says:

    Your inputs by Mr.Samith Thakur are very useful. We got a clarity. In our new apartment complex where the the association/society is yet to be formed, the AMC is Rs 2/sft. The maximum amount per unit is Rs 3000 or less PM. The input tax credit is not passed on to the apartment owners yet. But the builder wants to add GST @18% As per your table and the clarification, since the amount is less than Rs 7500 PM we can claim exemption. Please clarify whether my interpretation is valid and correct. I am thankful to you on behalf of our apartment owners for this clarifications.
    Regards,
    Rajashekar N

    1. CMA Samit Thakur says:

      Dear M Rajashekhar,

      Apologies for replying so late.

      In your case, as I see the builder is managing maintenance aspect as the society is yet to be formed. While based on the amount collected, it certainly sits below the monthly exemption limit of Rs 7500/- its important to note that the exemption is granted specifically to societies. If the builder charges this as AMC to society, the society will not be able to claim ITC as the final output service will end up being exempt. ITC is not available in case the output services are exempt. In your case it is extremely important that you immediately form the society and start collecting the maintenance in societies name to avoid the confusion of builder charging AMC and GST on the same and the same being not input tax credit eligible. Once the socety starts managing the maintenance aspect, they will be sitting within the exemption slab and will end up saving 18% on maintenance.

      Regards,
      samit

  5. Prasanna Khadilkar says:

    In our Society in Pune we have per month maintenance charges of Rs. 2500/- but our turnover crossess 20 Lakh. Whether GST is applicable or not.

      1. CMA Samit Thakur says:

        Please note that there are 2 scenarios here. Secnario 1) If the monthly contributions are below 7500 and cumulative annual contributions exceed 20 Lakhs Rupees. In this case GST is not leviable as one condition is not met. Scenario 2) In second scenario however as per the FAQs answered by CBI&C in case where monthly collections are below Rs 7500/- and if Cooperative society/ RWAs provide specific services of its own to its members or to any third party (e.g. use of community hall for social function by a non-member)cumulatively exceeds the threshold limit of Rs 20 Lakhs as per GST, then GST is leviable on such supply of services.

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