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Questioning present system of GST paid  by Housing Societies/ Apartment Owners Associations in particular those registered under The Karnataka Apartment Ownership Act,1972

GST is presently being paid by Apartment Owners’ Associations on the monthly contributions collected and not on the value of services actually provided which is an anomaly and according to the author not as per the GST Act. . Registered AOAs unless they ar e NPOs cannot obtain the benefit of Sl No 70 of exemption notification No 12/2017. AOAs are not taking full benefit of the exemption in view of  lack of clarity. There are challenges in billing and collection  when AOAs have  units which are both taxable and exempt. Associations registered under the Karnataka Apartment Ownership Act,1972 can follow a different system for billing and collection of monthly contributions  to help in minimising the issues in GST compliance.

Owners and occupants of residential apartments are end consumers of goods and services. Therefore an association of such owners would be an association of end consumers and there should be no question of GST being levied on such an association. However GST is not only being levied on residential associations and collected but the  tax is being paid on  the monthly contribution towards  the common expenses as if the monthly contribution is the value of the services provided by the apartment owners’ association to the owners. This  is not only ridiculous but does not find support from the Act. This practice is a carry over from the erstwhile Service Tax and as it was not challenged then on first principles it is being followed in the GST regime. This article brings out the issues in compliance  and also looks at the methods which could be adopted by  apartments which are registered under the Karnataka  Apartment Ownership Act,1972.

The article is divided into the following sections:

A. Levy of GST on the monthly contribution towards common amenities, sinking fund is not in accordance with law

B. Entry 70 in Exemption Notification No – No.12/2017 Central Tax(Rate) the veritable paw in the cookie jar trap!

C. Issues in computing the GST liability by AOAs on monthly contribution.

D. GST on contributions towards Funds such as Sinking Funds etc.

E. How apartments registered under The Karnataka Apartment Ownership Act,1972 should meet their common expenses and their obligations under GST

A. Levy of GST on the monthly contribution towards common amenities, sinking fund is not in accordance with law

GST is being collected from Apartment Owners Associations on the basis :

a). That tax is on “Supply” of goods or services ( Section 9 of CGST Act, 2017)

b). “Supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course of furtherance of a business. ( Section 7(1))

c). “ business” includes:

Provision by a club, association, society, or any such body (for a subscription or any other consideration) of facilities or benefits to its members. ( Section 2(17)  of the CGST Act).

Therefore an Association whether registered or not will have to pay GST on the facilities or benefits provided to its members on the ground that it is a “business” and the facility or benefit . provided constitutes a “supply”.

Clubs for example provide following services to their members:

1. Restaurant and catering Services

2. Lodging Services

3. Play and exercise facilities

4. Halls for private gatherings

5. Parking etc

Earlier on the principle of mutuality, the levy of tax was repelled on the ground that association and members are the same.  No man can profit from trading with himself. The GST Act has made the provision of service and facilities to its members by a club or association as a ’business” and subject to tax.

In the case of an Apartment Owners Association, (AOA) the AOA provides the following services:

1. Act for the owners  in the following matters:

1. Maintain the common area out of staff held on its rolls.

2. Procurement and payment for services such as electricity, water, gardening, security, maintenance of the common areas, servicing/repairs of the common assets such lifts, STP, Generators etc.

3. Represent owners’ collective interests before third parties such as municipal authorities, electricity board, water board etc.

This is the  primary function of the AOA. Some AOA may also  provide services in individual apartments such as carpentry, plumbing etc. from own staff or outsourced manpower.

2. Letting of common area such as club house, auditorium and collecting rent for the same.

3. Run on their own as a co-operative and provide the following benefits

  • Cafeteria
  • Departmental Stores
  • Saloons, etc

In respect of item No 1, the AOA collects a monthly contribution usually determined on a rate per square foot of super built up area toward the cost of common amenities procured or provided and meets the expenditure out of the same. Where the AOA carries out the work from its own staff, there is definitely a “supply” involved.  The service element provided by the AOA is not charged for and is captured in the cost of administration, accounting etc.  (The actual service of negotiating with outsiders, oversight is usually done by the Managing Committee Members as a free service). To the extent the AOA is providing service from its own staff it would be required to be valued for GST purpose.

In respect of item No 2, letting out of the common areas, an element of “supply” is there and when charged, GST is exigible.

Item No 3 would make the AOA like a club and GST would be leviable on the facilities and services provided and goods sold.

Items No 2 and 3 above may not create any issues for charging GST as a consideration is paid to the AOA on which GST can be charged at the appropriate rate based on the nature of the goods or service provided The question is what is the element of the “supply” in 1 and how should it be valued? . Whether GST is to be levied on the monthly contribution made by the owner to the AOA for meeting the common cost including cost of own manpower, manpower procured from third party manpower supply agencies, AMCs etc. Should the AOA charge for the representational services of the office bearers, who render free service to the AOA.

In my opinion, common sense says that  in the case of an  Apartment Owners Associations (AOAs), the value of service  applies only to services rendered by the AOA. The value of the goods and services procured by an agent do not represent the value of the services rendered by the agent. Hence the contribution towards common amenities cannot be the value of the facility or service rendered by the AOA to its member.

B. Entry 70 in Exemption Notification No – No.12/2017 Central Tax (Rate) the veritable paw in the cookie jar trap!

The confusion has been created by entry 70 in  exemption notification No.12/2017 Central Tax(Rate) which exempts contribution upto Rs. 5,000 from GST ( since increased to Rs. 7,500 vide Notification 2/2018 Central Tax(Rate)). An exemption notification cannot create a liability which never existed in the first place!  Further confusion has been created by FAQs. For instance TRU videF.No.332/04/2017-TRU released FAQs on levy of GST on supply of services to the Co-operative society and has clarified as under:

S.No Question Answer
1 The society collects the following charges from the members on quarterly basis as follows:
1. Property Tax-actual as per Municipal Corporation of Greater Mumbai (MCGM)
2. Water Tax- Municipal Corporation of Greater Mumbai (MCGM)
3. Non- Agricultural Tax- Maharashtra State Government
4. Electricity charges
5. Sinking Fund- mandatory under the Bye-laws of the Co-operative Societies
6. Repairs & maintenance  fund
7. Car parking Charges
8. Non Occupancy Charges
9. Simple interest for late payment.
10. From the tax/ charge as listed above, on which GST is not applicable.
1. 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.
2. Similarly, GST is not leviable on Non-Agricultural Tax, Electricity Charges etc, which are collected under other statutes from individual flat owners. However, if these charges are collected by the Society for generation of electricity by Society’s generator or to provide drinking water facility or any other service, then such charges collected by the society are liable to GST.
3. Sinking fund, repairs & maintenance fund, car parking charges, Nonoccupancy charges or simple interest for late payment, attract GST, as these charges are collected by the RWA/ Co-operative Society for supply of services meant for its members.

The above clarification is also given on the presumption that the monthly contribution by a member is chargeable to GST  without examining whether such monthly contribution is towards the value of “supply” made by the Association to its members. Further it is made  clear that GST is not to be levied on contributions from members  towards meeting the  cost of supplies which are not taxable or zero rated such as taxes, electricity, water tax etc. However cost of electricity supplied from inhouse generator is taxable.

Association cannot fight the mighty department and as it has become commonplace to pay tax on the monthly contribution, not doing so will attract litigation which office bearers would not like to face. One of the ways to test it is for a resident to file a writ against the Association as well as the Union of India and get a proper finding from the Court as to whether the contribution towards common expenses can be described as consideration for services provided by the Association. Another way is to charge an “administrative charge “ calculated at a percentage of the amount levied as a contribution and only consider the administrative charge for the purposes of GST.

As GST is to be collected  from the recipient of the service the Department is able to prevail by telling persons who question the taxability of an item on first principles saying why bother as you are collecting from the recipient. However in the case of an AOA the service provider and recipient are both the same! It is of course under stood that when an AOA chooses not to pay GST on contributions towards common amenities it cannot claim input credit on the outsourced services obtained . This makes the exemption notification a veritable paw in the cookie jar trap. To avail the benefit of the notification you have to agree to pay tax on the monthly contributions.

C. Issues in computing the GST liability by AOAs and collecting the contribution towards the same from members

If the AOA proposes to pay the tax on the contribution collected from members on a  monthly basis then it has to work out its GST liability and how to collect the same from the members. As seen from the FAQ, monthly contribution to meet certain expenditure is exempt from GST. Further vide entry no 70 in exemption Notification no 12/2017  there is an exemption upto Rs. 5,000 per member ( Rs. 7,500 with effect from 25-1-2018).  While working out the GST liability, the Association cannot collect GST from those members who are making monthly contribution  less than that figure. When an entity registers and pays GST it is entitled to the benefits of availing input credit.  The question faced by the AOA is how to pass on the input tax benefit  to its members.

For this one must examine the exemption notification the relevant portion of which is reproduced below:

Notification No. 12/2017- Central Tax (Rate) New Delhi, the 28th June, 2017 G.S.R……(E).- In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the  recommendations of the Council, hereby exempts the intra-State supply of services of description as specified in column (3) of the Table below from so much of the central tax leviable thereon under sub-section (1) of section 9 of the said Act, as is in excess of the said tax calculated at the rate as specified in the corresponding entry in column (4) of the said Table, unless specified otherwise, subject to the relevant conditions as specified in the corresponding entry in column (5) of the said Table, namely:-

Sl. No. Chapter, Section, 
Heading, Group or Service Code (Tariff)
Description of Services Rate (per cent.) Condition
77 Heading 9995 Service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution –
(a) as a trade union;
(b) for the provision of carrying out any activity which is exempt from the levy of Goods and service Tax; or
(c) up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex.
Nil Nil

Analysis of the above exemption notification sets out the following condition for an AOA to enjoy the benefits of exemption upto Rs. 5,000 per member ( Rs. 7,500 with effect from 27-1-2018) from  the monthly collection from GST: It should either be an unregistered association or a Non- Profit entity. A Non Profit entity is not defined under the GST Act.

As per Investopedia available online:” “Not for profit”  describes a type of organization that does not earn profits for its owners. All of the money earned by or donated to a not-for-profit organization is used in pursuing the organization’s objectives and keeping it running. Typically, not-for-profit organizations are charities or other types of public service organizations.”

An AOA is not formed for profit but to maintain the common property. However the surplus ultimately belongs to the members of the association. Hence a registered AOA may be held  not eligible for the benefit of the notification no 12/2017 as it strictly cannot be described as a NPO. In practice  the benefit has not been denied under the Service tax regime and may not create any issue under GST. However the writer is aware of an AOA which as per its registered deed has stated that the funds of the association do not belong to its members and in the event of winding up will be donated to another charitable association! It is not clear whether the Department is insisting for that clause to appear in the deeds to be eligible for the benefit of exemption notification no 12/2017 or it is an error in drafting.

The next issue is the extent of exemption available. Is it upto Rs. 7.500  per member or upto  the monthly contribution per member or Rs. 7,500 whichever is lower. The author is of the opinion that it is the former. To illustrate by the following example: If a residential complex has 100 apartments- 50 paying monthly contribution of Rs. 4,000 per month and balance 50 paying Rs. 10,000 ,  the exemption available under Exemption Notification no 12/2017 is Rs. 7,500 per member or Rs. 7,50,000 ( Rs. 7,500 per member for 100 members) and not just Rs.  5,75,000 ( 50 members restricted to Rs. 4,000 per member and for 50 members at Rs. 7,500 per member).  A clarification in this regard maybe called from the CBIC by those associations who are offering the monthly contribution as value of supply.

It may be noted that  the exemption is available for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex.  Hence any collection which is not used to meet the outsourced services will not be exempt. For example in the above example if the monthly outgo towards meeting the outsourced services is Rs. 6,00,000 then exemption for that month will be limited to Rs. 6,00,000 out  of Rs. 7,50,000 available.

Lastly while working out the input credit the exemption has to be considered and prorate deduction has to be claimed.

All this creates a problem for the management of the AOAs in working out how much to collect from each member in the monthly invoice. Chapter 41 of the GST flyer issued by the Department “GST on Co-operative Housing Societies” has clarified as under:

“As per clause (b) of the above exemption, exemption is available to housing societies for provision of carrying out any activity which is exempt from the levy of Goods and Services Tax assuming that a housing society is a non-profit registered entity; and property tax and electricity is exempt from the levy of GST. Thus, charges, collected by the society on account of property tax, electricity charges and other statutory levies would be excluded while calculating the limit of Rs.5,000/-. Further, the question would then arise that if the monthly bill is say Rs. 6,000/- (and the same is on account of services for common use of its members), will GST be applicable on Rs. 6,000/- or Rs.1, 000/-. In such cases, exemption is available up to an amount of Rs.5, 000/ and GST would be applicable on the amount in excess of Rs.5,000/-“

If GST is to be separately indicated in each bill then the above procedure should be followed. The question would arise as to how the input credit should be allocated in a fair manner. The author’s suggestion is that the exemption is for the Association on number of members and not qua member . The contribution should be collected from members pro-rata towards common costs without any distinction and GST charge absorbed as a common cost by the Association.

D. GST on contributions towards Funds such as Repairs & Maintenance Funds, Sinking Funds etc.

Members of AOA are asked to contribute towards various funds such as Sinking Funds, Repairs & Maintenance Funds etc. As per the clarification of  TRU contribution towards these funds are chargeable towards GST. The issue is that the expenditure from these funds will happen at a future date and how should the input credit available on this expenditure be dealt with? It may so happen you have paid GST today on the contribution towards the Sinking Fund and when the expenditure is actually incurred out of the fund say 5 years down the line , AOAs could be exempt from GST on common expenses and the input credit is lost!

Therefore it is advisable to collect the contributions as a deposit, and the deposit should be reflected  to the credit of the member in the books of the AOA   and debit the share of the member in the expenditure incurred out of the fund when the expenditure is actually incurred.

E. How apartments registered under The Karnataka Apartment Ownership Act,1972 should meet their common expenses

Under Section 10 of the  Karnataka Apartment Ownership Act,1972 the surplus or deficit of the association is to be distributed amongst the members :

“10 Common Profits and Expenses”

The common profits of the property should be distributed among and the common expenses shall be charged to, the apartment owners according to the percentage of the undivided interest in the common area and facilities.”

Therefore there is no concept of  the association having a “Surplus” in its books. Accordingly in my opinion the share of each member in the  monthly expenses net of income if any of the association must be debited to the  members account and recovered. To enable the association to meet its commitments, members may be asked to keep a deposit sufficient to meet certain month’s common expenses with the   association as may be decided by its managing committee. A refundable deposit is specifically excluded from “consideration” and is not an amount on which GST is chargeable.

When the share of expenses is debited to a member, it does not have the character of income. The only question would be whether it is a pure agent services and exempt or GST is chargeable on the amount so collected. If the Association takes the stand that the amount collected by it in respect of third party costs can never be “Provision by a club, association, society, or any such body (for a subscription or any other consideration) of facilities or benefits to its members” to constitute business as defined under  Section 2(17)  of the CGST Act then question of “pure agent service” would not arise.

Then the value of supply of the Association would comprise the following services rendered to members ( or others):

1. Maintenance of the common area out of staff held on its rolls.

2. Letting of common area such as auditorium, car park etc. and collecting rent for the same.

3. Run on their own as a co-operative and provide the following benefits , goods

  • Club House
  • Cafeteria
  • Departmental Stores
  • Saloons, etc

Levying and collecting specific charges from members such as electrical / plumbing repairs in individual units, transfer fees, damages, interest etc.

If the above principle is followed most residential associations would be out of GST.

Even if the AOA chooses not to fight the system and pay GST on the common costs of outsourced services, it should be easy to work out the amount on which GST is payable applying the principles clarified in the FAQ reproduced above.


The time for filing the Annual Return for the year 2017-18 has been extended to March 31st 2019. I hope this article has alerted the Housing Societies and AOAs of the inconsistencies in the present practice and take a view of after obtaining proper legal opinion.  As already stated in the beginning, owners and occupants of residential apartments are end consumers of goods and services. Hence residential apartments should have been exempted from GST. The net tax revenue may also not be significant in view of the exemption vide notification No 12/2017 and FAQ. Serving on the Managing Committee is voluntary and getting people to participate is a task. GST compliance should not add to the responsibility of the office bearers and cGST should be levied and collected on the services actually provided.

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  1. Colonel Achal Sridharan says:

    A real estate developer has to provide maintenance for an apartment after hand over of the complex until the Owners’ Association is formed and registered. Will this be taken as service and GST charged with Monthly Maintenance and paid to the Government? Please clarify. Thanks and regards

    1. anilkayrao says:

      The real estate developer is not a apartment owner’s association. so GST would be applicable on the services provided by him

  2. vswami says:

    No knowing why the writer , a CA, has made not even a whisper of the host of court cases in which the principle of mutuality has been relied upon successfully, and decided in favour of “housing associations” (by whatever name called).
    ADMN: As you are el aware this is an issue on which, besides several comments posted on Articles displayed on your website itself so also on FB And LInkedin, has been displayed an article discussing the issues, comprehensively and at great length, in the context of the case law.
    The writer will , – in his own personal and clientele’s interest, – do well to care and go through those material , available in public domain, for free on a click of the mouse, mindfully; and enlighten also your readers suitably, in proper light, so as to be of useful guidance.

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April 2024