Cooperative Housing Societies (CHS) and Resident Welfare Associations (RWA) are considered as ‘person’ (dealer) and activities of these associations are considered as ‘business’ under the Goods & Service Tax laws. They are required to register with GST department of the respective State as service providers within 30 days of their aggregate turnover crossing Rs 20 lakh.
Aggregate turnover includes total turnover of taxable and non-taxable services like member’s maintenance charges, rent from hoardings, mobile towers, parking, charges for hall hire, gym and other facilities, apartment transfer fees, non-occupancy charges, interest for delayed payments etc. The tax rate applicable is 18% (9% GGST + % CGST).
Registered Societies under GST are eligible for input tax credit for GST paid on capital goods such as generators, water pumps, water tanks, lawn furniture, gym equipment, children play equipment etc; goods such as pipes, sanitary & hardware fittings; fire equipment; security services, housekeeping, contract workers, etc but not on civil works.
CHS’s are also liable to pay GST under Reverse Charge Mechanism on goods transport, lawyers professional fees, government services, sponsorship programmes. The tax paid under reverse charge can be subsequently claimed as input tax credit.
Monthly maintenance charges up to Rs 7,500 per unit are exempt from charging tax to members by revised Notification no 9/2017 dated June 28, 2017. If a member owns two or more units in the same society, the same will be exempt if charges are less than Rs 7,500 per unit. If the charges exceed this amount, tax is required to be paid on full amount. Eg if maintenance charges per unit exceeds Rs 7,500, say Rs 7,600, tax is required to be paid on full amount and not on Rs100. If CHS’s turnover exceeds Rs 20 lakh and maintenance charge per member is less than Rs 7,500 there is no need to pay tax, even if society is registered under GST. If CHS’s total turnover is less than Rs 20 lakh and monthly maintenance charges is more than Rs 7,500, the same is fully exempt from tax if the society is not registered under GST.
CHS normally recovers following charges from members -municipal property tax, water & electricity charges paid to government, contribution to sinking fund, repairs & maintenance fund, car parking, non-occupancy charges, charges for delayed payment. Of this, there is no need to charge tax on amount recovered from members towards reimbursement of water, electricity and property tax charges. However, if society is providing water through tankers, or electricity through generators, tax is chargeable as they are not government services. Tax is required to be charged on sinking fund collection, repair maintenance fund, non –occupancy charges, charges for delayed payments, car parking, transfer fees.
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. 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. This collection being 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.
With amendments, CHS can now avail Composition Scheme instead of regular scheme as stated above, If the CHS’s aggregate receipt of turnover is more than Rs 20 lakh but less than Rs 50 lakh and does not desire to claim any tax credit on its expenses paid GST. If the Society’s aggregate receipt of turnover is more than Rs 50 lakh, it will be fully covered like any other business entity. Under the composition scheme, CHS has to pay a lower rate of GST at 6% on their annual turnover, without claiming Input tax credit.
GST Returns: CHS has to file GST returns on a monthly or quarterly basis, depending on their turnover. They have to file GSTR-1, GSTR-3B, and GSTR-4 returns.
Invoice and Records: CHS has to maintain proper records of invoices and other documents related to GST. They have to issue tax invoices to their members for the services provided by them.
To be on the Managing Committee of CHS is a thankless job without any remuneration and appreciation from members. To avoid embarrassment of non-compliance, it is advisable that they are aware of basic legal compliance under tax laws.
(The author is a chartered accountant by profession)