CA Sanjeev Singhal

1.    Introduction

S.N. 28 of the  Exemption Notification no. 25 /2012 dated 20.6.2012 exempts services by unincorporated body or a non profit entity registered under any law to own members  by way of reimbursement of charge or share of contribution.

  •       As a Trade Union
  •       For provision of exempted services
  •       For the common use of its member in a housing society or residential complex.

In the earlier service tax regime, trade unions were specifically excluded from the definition of taxable services provided by “club or association”. Further the services of housing society to its own members were covered within the ambit of taxable services by “club or association”. However , a specific exemption was granted to resident welfare association for service provided or to be provided  to its members vide notification no. 8/2007 dated 1.3.2007 provided the amount charged for such services does not exceed Rs. 3000 per month per member.  Thus the mega exemption notification has increased the threshold limit to Rs. 5000 per month per member w.e.f 1.7.2012.

It is worthwhile to note that in the previous  tax regime, the association having objective of public services or charitable, religious or political objective were also excluded from the taxable services provided by “ club or association”. 

2.  Statutory provision granting exemption

With effect from 1.7.2012, exemption is provided to service rendered by society to its own members.

As per S.N. 28 of  the mega exemption notification, the following would be exempt:

Service by an unincorporated body or non- profit entity registered under any law for the time being in force, to its own member by way of reimbursement of charges or share of contribution-

a)    As a trade union

b)    For the provision of carrying out any activity exempt from the levy of service tax ; or

c)    Up to an amount of five thousand rupees per month per member for sourcing of goods or services from third person for the common use of its members in a housing society  or a residential complex

Scope of Exemption

Service should be provided by

  • Unincorporated body; or
  • Non profit entity registered under any law for the time being in force

→  Service should be provided by way of

  • Reimbursement of charges
  • Share of contribution

→Such services should have been provided

  • As trade union
  • For the provision of carrying out any activity exempt from the levy of service tax ; or
  • Up to an amount of five thousand rupees per month per member for sourcing of goods or services from third person for the common use of its members in a housing society  or a residential complex

Service to its own member

It shall be exempt only when it is provided to its own member otherwise the same shall be taxable.

In any case, service provided by unincorporated body or a registered non- profit entity will be taxable unless specifically exempt under the provision of the mega exemption notification or the Act.

Reimbursement of charge

As per the dictionary  reimbursement means “ restoration of equivalent for something paid or expended. Often one person incur some expenses on behalf of another and then recover the amount from the other person. This is subject to fulfillment of other conditions.

Share of Contribution

Means, expensed by unincorporated body or a registered non- profit entity  on behalf of its members which has been collected from its members as monthly contribution.

Trade Union

Section 2 (h) of the Trade Union Act, 1926 defines a Trade Union means any  combination , whether temporary or permanent , formed primarily for the regulating the relations between employers and workmen or between workmen and workmen or between employer and employer , or for imposing restrictive condition on the conduct of trade or business , and includes any federation of two or more trade unions.

Provision of exempt services

Mega Exemption provide that any amount collected by an unincorporated body or registered non- profit entity from its members for providing any exempt activity will be exempt from service tax.

For example , an amount collected by RWA from its members for holding camps to provide free health care services to poor persons will be exempt from service tax as the service provided is exempt. On the contrary, share of contribution shall be taxable, if any service provided is taxable.

Common Facilities in a Housing Society or residential complex

Housing society typically is an artificial jurisdictional person which provides services to, facilities or advantages for subscription or any other amount to its members. The members of its housing society generally reside in the same residential complex.

Service provided by housing society to its members can range from security of premises , upkeep of the premises , maintenance of common passage ,maintenance or upkeep of parking facilities to maintenance and upkeep of lifts etc.

As per S.N. 28 of Mega Exemption notification provides that  Up to an amount of five thousand rupees per month per member for so unless sourcing of goods or services from third person for the common use of its members in a housing society  or a residential complex. Any amount collected over and above Rs. 5000 shall be chargeable to tax.

Taxable Services

→Service provided by unincorporated body or an entity registered under any law  to any third person( other than member) unless specifically exempted under any other provision.

→Amount received by unincorporated body or an entity registered from its members towards the amount expended or sought to be expended for the benefit of the member.

→Amount received by unincorporated body or an entity registered from its members for providing any taxable services.

→ Amount over and above Rs. 5000 per month per member collected from the members of housing society for providing various services of the common use of all the members.

Article written By CA Sanjeev Singhal, FCA, DISA [ ICAI]

Author Bio

Qualification: CA in Practice
Company: Sanjeev Kavish and Associates
Location: Gurgaon, Haryana, IN
Member Since: 14 Jul 2017 | Total Posts: 70

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0 responses to “Service by Non- Profit Entity to its Members- Taxability in Service Tax”

  1. R S SHAH says:

    Re : SERVICE TAX ON HOUSING SOCIETIES
    Pursuant to my comments above on 7 Jan 13 and subsequent posts, apart from judgements of Jarkhand High Court,Ranchi and of the Gujarat High Court in the case of clubs, service tax was held not applicable on Mutuality principle.
    some appellate authorities also had upheld in mumbai that service tax is not applicable to societies on the concept of Mutuality,
    Now recently, the CESTAT, Service tax tribunals in Mumbai have given judgments that service tax in Societies is not applicable on Mutuality concept and on reimbursement concept also.
    We beleive that on fundamental concept, both principles are very strong and hence there may not be service tax on societies.

    Could the moderator and the experts please analyse the judgements of Tribunals and High courts, for Cooperative Societies and give their comments.

  2. Mansukh H.Rachani says:

    Residential complex maintenance is run by its own members and in some cases income sources is interest received from the deposits collected from members and in case of shortfall we have to collect contributions from the members in all this cases we are the users and not selling the services. I.T. authority should reconsider its stand on this issue.

  3. kruti shah says:

    Dear Sir,

    What is the service tax applicability in case of a social community, which collects an yearly fees from its members and spends the whole of such amount [sometimes exceeding that] in organizing events fro them. Here it does not provide its members any service as such. All it does is collect the money from its members and pay it to the organizers without any profit of its own.

  4. R S SHAH says:

    REQUEST MR SANDEEP TO PLEASE APPEAL YOUR SUBSCRIBERS TO COMMENT ON THE ABOVE SUBJECT. APART FROM GOOD ARTICLE FROM EXPERTS WITH YOU, HEALTHY DEBATE CAN FOLLOW FROM YOUR SUBSCRIBERS WHO KNOW ON THIS SUBJECT.

  5. Makhan Jhaver says:

    There seems to be lot of confusion about applicability of Service Tax on services to flat residents in apartments. Flat Associations collect amounts out of which major chunk are paid for Electricity charges for common area , Generator, Lifts etc., Metro Water Charges , Lifts , other equipment maintenance charges etc., Here basically there is no service at all or add on service at all- Some amounts are being paid for salaries to security staff , cleaning staff , supervisor staff etc., Somebody should clarify about applicability of Service Tax on such services and reimbursement of expenses incurred…

  6. B.Chakrapani says:

    Read. Thanks for the detailed writeup.

  7. harish says:

    Pl clarify whether service tax is chargeable in the case Rotary clubs engaged in social service. A non profit otganisations run by membership fees organising medical camps, distributing polio drops, supporting vocational centres and old age homes.

  8. nagesh kini says:

    very relevant in the present day context. need to be widely disseminated in public interest for NGO and Neighbourhood Welfare organizations

  9. R S SHAH says:

    A Healthy debate / dicusiion through this good forum can be heheld on this site.

  10. R S SHAH says:

    This issue of applicability of service tax on co-operative society is not considered in sincerity or seriously till now, perhaps ignored by Most.
    The first argument. even in the era of ‘negative list concept’ of taxing of service tax, Yet it cannot charge service charge when there is NO SERVICE ELEMENT.

    In the case of Cooperative society ( Housing or otherwise like premises societies in Mumbai). THE MUTUALITY PRINCIPAL is of vital importance. Mutuality concept has been interpreted by courts in England and then by many High courts and Supreme court of India as well.The concept is very clear that one cannot provide taxable service to oneself. If principally on mutuality basis if the collection by society for itself / its members, OF ANY AMOUNT ( the limit of 5000 per month would then be of no consequence) would not be liable for service tax. ???
    We strongly feel that service tax should not apply to such cooperative societies on mutuality principal, irrespective of the quantum. the maintenance charges are collected sometimes on area basis, hence if area is bigger, the amount may exceed Rs. 5000 p.m.)-

    REQUEST Y O U (editor) and Mr. Sanjeev Singal and others / professionals / experts to think on this line and give your suggestions.

  11. Vivek Prabhu says:

    Thank you for the neat writeup. Had one question – What would be the situation in case of a commercial complex owners’ association where the whole building has only office spaces?

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