GST on Resident Welfare Association (RWA)

Introduction:

Co-operative Housing Societies are entities registered under the co-operative laws of the respective States. According to Section 2(16) of the Maharashtra co-operative society act, 1960,?“housing society”?means a-

• society, the object of which is to provide its members with open plots for housing, dwelling houses, or flats; or
• if open plots, dwelling houses, or flats are already acquired, to provide its members common amenities and services.

These are a collective body of persons, who stay in a residential society and would be supplying certain services to its members like maintenance of the building, security of society & the residents, etc.

Well, the answer is?yes. As per Section 9 of CGST Act, 2017, the levy of GST is on the supply of goods and services and as per section 7,“supply”?includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

The definition of?“person”?in Section 2(84)(i) of the CGST Act, 2017 includes a cooperative society registered under any law relating to cooperative societies.?Thus, a registered co-operative society is a person within the meaning of the term in the CGST Act.

The definition of business as per section 2(17) of the CGST Act, 2017 is as under,

“business”?includes–

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager, or any other similar activity, whether it is for a pecuniary benefit.

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause

(c) any activity or transaction in sub-clause (a), whether 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 license to book maker in such club; and

(i) any activity or transaction is undertaken by the Central Government, a State Government, or any local authority in which they are engaged as public authorities.

Thus, as per section 2(17)(e) of the CGST Act, 2017, 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 is deemed to be a business.

The activities of the housing society would thus?attract the levy of GST?and the housing society would be required to register and comply with the GST Law.

As per Section 22 of the CGST Act, 2017, if the turnover of the housing society is above 20 lakhs, it needs to take registered. Also, Sr. No. 77 of Notification No. 12/2017 – CT (Rate) dated 28.06.2017 as amended by Notification No. 2 / 2018 – CT (Rate) dated 25.01.2018 provides for the following exemption to housing societies:

Given the provision contained in clause (c) above, a society may be registered under GST, however, if the monthly contribution received from members is less than INR 7,500/ – no GST is to be charged by the housing society. In a nutshell, the following can be summarized:

Now, certain statutory dues such as property tax, electricity charges, etc form part of the monthly maintenance bill raised by the society on its members. The question arises, as to whether such charges should be included while computing the monthly limit of INR 7,500?

As per clause (b) of the above Sr. No. 77 of Notification No. 12/2017 – CT (Rate) dated 28.06.2017, the exemption is available to housing societies for the provision of carrying out any activity which is exempt from the levy of Goods and Service Tax. Since property tax and electricity are exempt from the levy of GST, charges collected by the society on account of property tax, electricity charges, and other statutory levies would be excluded while calculating the limit of INR 7,500.

Further, the question would then arise that INR 7,500 is the basic exemption limit (as the notification mentions exemption to be “Up to?INR 7,500”) and tax to be charged over and above the basic exemption limit of INR 7,500 or tax to be charged on the whole amount once the maintenance cost per month exceeds INR 7,500?

As per?circular no. 109/28/2019?dated 22nd?July 2019, it has been clarified that if monthly maintenance exceeds INR 7,500 then?GST?will be levied on the whole amount of monthly maintenance and not on the amount exceeding INR 7,500. This contradicts the exemption provided via notification where-in it is mentioned that GST will not be applicable on amounts up to INR 7,500. The point here to be noted is that the withdrawal of a statutory exemption by way of a circular is contrary to the provisions of the Constitution.

Advance ruling on the issue of whether the exemption of INR 7,500 was applicable even if monthly maintenance was above INR 7,500 was filed by TVH Lumbini Square Owners Association in February 2019. The Tamil Nadu Advance Ruling Authority ruled that GST would be applicable on the total amount in case maintenance charges exceeds INR 7,500.

However, the case had been referred to the Madras High Court & the Hon’ble Madras High Court, in July 2021, passed a judgment that GST must be charged on the amount collected over and above INR 7,500 and not on the entire amount. After hearings, the bench observed that tax slab means income up to that level and above that will be treated differently. But now, the GST department has appealed against this single-member judge order passed by Justice Anita Sumanth and the said appeal is admitted by the Hon’ble Madras High Court on 9th?September 2021.

RWA can claim ITC of GST paid on inputs and services used for making supplies to its members subject to eligibility as per Section 17 and reversals as per Rules 42, 43 & 44. Generally, the ITC would mainly be on the following:

1. Capital Goods such as generators, furniture for offices, electrical installation, etc.
2. Repair & Maintenance services,

Conclusion:

The current Service Tax status is intended to be maintained under GST regarding tax effects on housing societies. Since the society would be permitted to receive ITC, which was previously prohibited under service tax, the tax burden under GST will be smaller. Also, the exemptions given ensure that there would be no tax burden on smaller societies where the monthly contribution of the individual members does not exceed INR 7,500/-.

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.

Posted by

CA Tarun Kapoor

AKGVG & Associates