Let us discuss in this article whether GST is applicable on Co-operative Housing Societies or Residential Welfare Association.
As per Sec 9. (1) 0f CGST Act, 2017, GST is levied and collected and tax shall be paid by the Taxable Person
Sec 9. (1) 0f CGST Act: Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the Taxable Person.
Who is a Taxable Person?
Sec 2(107) of CGST Act : “Taxable Person” means a person who is registered or liable to be registered under section 22 or section 24;
Persons Liable for Registration
Sec 22. (1) of CGST Act : Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees.
In the above section the phrase “Supplier” is used. Let us discuss who is supplier.
Who is a Supplier?
Sec 2(105) of CGST Act : “supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied;
From the above section it clear that supplier mean a person supplying. Let us now discuss who is a Person and whether Co-operative Housing Societies cover under the definition of Person
Who is a Person?
Person has been Defined under 2(84) as follow :
Sec 2(84) of CGST Act, “Person” includes—
(a) an individual;
(b) a Hindu Undivided Family;
(c) a company;
(d) a firm;
(e) a Limited Liability Partnership;
(f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India;
(g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013;
(h) any body corporate incorporated by or under the laws of a country outside India;
(i) a co-operative society registered under any law relating to co-operative societies;
(j) a local authority;
(k) Central Government or a State Government;
(l) Society as defined under the Societies Registration Act, 1860;
(m) trust; and
(n) every artificial juridical person, not falling within any of the above;
From the above it is obvious that under clause (i) a co-operative housing society will be covered under the definition of Person.
Sec 22. (1) of CGST Act also made a reference of “taxable supply”. Let us understand the what is “Taxable Supply”
What is “Taxable Supply”:
Sec 2(108) of CGST Act : “taxable supply” means a supply of goods or services or both which is
leviable to tax under this Act.
Now the question arises whether the Co-operative Housing Society or Residential Welfare Association is making any “supply” and such supply leviable to tax? Let us see the definition of “supply”
What is “Supply”:
As per 7. (1) of CGST Act : For the purposes of this Act, the expression “supply” includes––
(a) 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 or furtherance of business;
(b) import of services for a consideration whether or not in the course or
furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as
referred to in Schedule II.
As per Clause (a) of above Section, supply includes all forms of supply of Goods or Services made or agreed to be made for a consideration by a person in the course or furtherance of business.
From the above following need to be answered to understand applicability of supply provisions
It is clear that a co-operative housing society providing some common services to its members and collects the expenditure incurred either for some specific purpose like municipal taxes, water charges, electricity charges etc. on the basis of area of flats or some other appropriate basis. Other expense like maintenance, repairs to society’s building, maintaining common facilities like lift, DG Set, Gym, Garden, parking space etc. are also allocated and collected from the members. It is clear that the society is providing above services constitutes as supply.
Services of membership organizations are taxable supply and specific entry is made against Service Accounting Code (SAC) 999598 for Home owners associations
Now let us discuss about Consideration
What is Consideration?
Sec 2(31) of CGST Act : “consideration” in relation to the supply of goods or services or both includes––
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
Therefore these services forms supply and monthly / periodic maintenance charges collected from members may be treated as Consideration.
The last test is whether the Housing Society is involved in any Business Activity?. Let us discuss what is business?
What is Business ?
Sec 2(17) of CGST Act defines “business” includes––
(a) any trade, commerce, manufacture, profession, vocation, adventure,
wager or any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
(h) services provided by a race club by way of totalisator or a licence to book maker in such club ; and
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;
From Clause (e) of Sec 2(17) of CGST Act, it is clear that business includes provision by a society of the facilities or benefits to its members. Therefore Housing Society providing Services to its Members is considered as in the course of or furtherance of Business.
From all the above discussions following inferences may be made :
Thus Co-operative Housing Society or Residential Welfare Association who’s Turnover (collection money) crosses Rs 20 Lakhs per Annum become liable for Registration under GST and should charge GST (CGST + SGST) from its members.
Applicability of Tax Rate:
As per Notification No. 11/2017-Central Tax (Rate), for services related to Services furnished by business, employers and professional organizations Services, Services furnished by trade unions & Services furnished by other membership organizations falling under SAC 9995 the Central Tax Rate is 9%. Similar Provisions are made under SGST Acts also. Therefore there will a levy of 18% (CGST @ 9% + SGST @9%).
Relaxation under GST
Entry No : 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
That means three cases arise from above
Input Tax Credit (ITC) Allowed :
If the Society becomes liable to pay GST, it is allowed to take Input Tax Credit under Sec 16 (1) of CGST Act subject to conditions for taking input tax credit. Housing Society is entitled to ITC in respect of taxes paid by them on capital goods (generators, water pumps, lawn furniture etc.), goods (taps, pipes, other sanitary/hardware fillings etc.) and input services such as repair and maintenance services – Lift AMC, Housekeeping, Security, Fire AMC, Repairs & Maintenance, Contract staff, Accounting & Auditing Services and other such services.
Whether Tax Burden Increase?
There are certain apprehensions that tax burden to members of the Housing Society will increase from earlier 15 % (including Cesses) of Service Tax to 18% payable under GST. The tax burden however will be lower under the GST since they would now be entitled to Input Tax Credit (ITC) in respect of taxes paid by them on capital goods like water pumps, generators, lawn furniture etc and input repair and maintenance services. The ITC of VAT and Central Excise on goods and capital goods was not there in the pre-GST period and these were part of the cost to the RWA.
Applicability of Reverse Charge Mechanism
Tax liability under Reverse Charge as defined under Sec 2(98) of CGST Act also applicable. That means tax shall be payable by the Housing Society when supplies are received which are notified Services as per Sec 9(3) of CGST Act like services of Goods Transport Agency, Advocate Services etc and also supplies from Un-registered Person under Sec 9(4) of CGST Act. It is advisable to avoid receiving supplies from Un-registered persons.
Whether Eligible for Composition Scheme?
Composition scheme is beneficial scheme for small Businesses whose Turnover is less than Rs 75 Lakhs per Annum (Rs 50 Lakhs for Special Category States). However the scheme has many restrictions and one of them is Service Sector (except Restaurants). Since the facilities and benefits extended by the Housing Society are in the nature of Service grouped under Service Accounting Code (SAC) 9995, Housing Society is not eligible for Composition Scheme.
Under GST, all dealers including a Society who’s Annual Turnover Crosses Rs 20 Lakhs need to be Registered.
Such GST Registered Housing Society Need to Issue a Tax Invoice to its Members
All the Registered Persons (Normal Registration) will have to file 3 returns in a month.
GSTR – 1 by 10th of following month – Towards Outward Supply (Maintenance Charges)
GSTR – 2 by 15th of following month – Towards Expenses Side and
GSTR – 3 by 20th of following month – Monthly consolidated return and
GSTR – 9 by 31st December of the Following Year
Thus in all 37 returns will have to be filled.
Also to maintain proper Records of Supply & Expenses and preserve such records for 72 Months.
Services provided by Co-operative Housing Society or Residential Welfare Association are comes under Taxable Supply and attracts GST.
However Exemption is provided if the monthly subscription of members is less than Rs 5,000 per member. This apart general exemption on supplies up to Rs 20 lakh per annum also available to the Housing Society.
In case the monthly subscription per member and also annual turnover crosses Rs 20 Lakhs then Housing Society need register and discharge tax liability. That means the society should issue tax invoice and collect GST @ 18% (CGST @9% + SGST @9%) from its members.
Input Tax Credit is available on tax paid inputs and capital goods to Registered Housing Societies.
Since the nature of supply is service, Composition Scheme is not available