The GST Authority for Advance Ruling (GST-AAR), Maharashtra bench, has said that if monthly charges collected from the members of a housing society exceed Rs 7,500 a month, goods and services tax (GST) will be levied on the total amount and not on the differential value.
This, say tax experts, can open a Pandora’s box as societies may find it difficult to recover GST arrears from owners or tenants who may have moved out over the years. With society collections taking a hit after the coronavirus outbreak, this may lead to an additional burden for members.
In July, the Madras High Court had ruled that only an amount in excess of Rs 7,500 a month per member collected by the residents welfare associations (RWAs) is taxable under the GST Act.
It set aside the order of Tamil Nadu Authority for Advance Ruling in 2019 that if an amount collected by the housing societies exceeds Rs 7,500 a month per flat, GST at the rate of 18 percent would will be charged on the entire amount and not on the difference.
The GST AAR ruling came ahead of December 9 hearing in the matter by a division bench of the Madras High Court.
The Maharashtra AAR also said that charges collected by the cooperative housing society on property tax, electricity charges and other statutory levies that form part of monthly maintenance bills would be excluded while calculating the limit of Rs 7,500 per month.
GST would be applicable on amount collected from members towards sinking fund, building repair fund and election and education fund as these are not deposits.
Deposits are refundable but sinking fund is not refundable as it is collected in accordance with provisions of the Co-operative Societies Act.
“The contention of the revenue officials is that the entire amount of contribution, where the same exceeds Rs 7,500 should be eligible to GST. This is based upon a circular issued in July 2019, whereas, societies are relying upon a single bench Madras High Court Ruling, which had quashed the circular. However, as the Madras High Court Ruling has been stayed by Division Bench, the matter is likely to attain finality, when we get a clear ruling from the Division Bench,” explained Harpreet Singh, Partner, Indirect taxes at KPMG in India.
“Also, if the entire contribution is held to be taxable, it would be very difficult for the societies to recover GST arrears, as the owners/ tenants may have changed during the past periods” he adds.
‘Collections have dipped’
Such decisions will bring to the fore a number of issues, especially in the light of low collections for maintenance following two waves of COVID-19, say housing society members.
“All group housing societies should ideally be exempted from the GST bracket. And if at all this has to stay, it should be on the differential amount only. Welfare bodies are already struggling to collect the maintenance amount for routine maintenance operations. With an additional financial load on residents, this may lead to unrest among residents as well as welfare bodies,” said Rajiva Singh, president, Noida Federation of Apartment Owners’ Association (NOFAA).
What should homebuyers' associations do?
A Homebuyers Welfare Association collects maintenance charges from residents on the basis of an amount per square foot. Costs pertaining to housekeeping, security, etc. are all incurred from there.
“GST Notification 12/2017-CT (Rate) exempts such charges ‘upto’ an amount of Rs.7,500 per member per month from the levy of GST. The GST authorities interpreted this in a way confirming levy of GST on the entirety of the contribution to a RWA where the contribution exceeded Rs.7,500 per member per month,” said Vivek Jalan, partner, Tax Connect Advisory Services LLP, a consulting firm.
The Madras High Court quashed the circular issued by The GST authorities and held that the term “up to” connotes an upper limit. It is interchangeable with the term “till” and means that any amount till the ceiling of Rs 7,500 would be exempt for the purposes of GST.
It also held that in a case where legislature intended that the exemption shall apply only to cases where the amount charged does not exceed a specified pecuniary limit, it states as much that the exemption shall apply only where the gross amount charged for such service does not exceed a said amount in a financial year.
Here, nothing as such is stated. The Madras High Court Order is not binding but persuasive for Maharashtra taxpayers.
“The Maharashtra AAR has ruled contradictory to the High Court verdict and required that GST should be paid on the entire amount of maintenance charges in case it exceeds Rs.7500 per month per member,” Jalan said.
The question now before the residents’ associations is whether to follow the Madras High Court order and stop charging GST or to keep charging GST on the entire amount if the charge per member per month is more than Rs 7,500.
It is to be noted that the Madras High Court’s order will be binding on the tax authorities of the corresponding state. In case taxpayers in other states want a similar relief, they may challenge the GST circular in their own jurisdictional high court.
There is every chance that the government may file a petition before the Supreme Court against the high court’s order. Also, the law may see a retrospective amendment, which has already happened in a similar matter challenging the charge of taxes on the concept of mutuality, he said.
Until the Supreme Court decides as such, taxpayers are advised to tread with caution. It is also to be noted that AAR orders are only applicable to the applicant and none other. It should not be a cause for any other taxpayer to pay tax as such retrospectively.
Hence, unless a taxpayer files a writ and takes a specific relief from a high court for itself, they may continue to pay taxes on the entire amount prospectively, in case the charge per member exceeds Rs 7,500 per month, Jalan said.
In November 2020, the GST Appellate Authority for Advance Rulings (AAAR), Maharashtra bench had upheld an earlier order of the GST Authority for Advance Rulings that GST is to be levied on maintenance charges collected by cooperative housing societies if the monthly subscription or contribution charged from members is more than Rs 7,500 per month and the annual aggregate turnover is Rs 20 lakh or more.
In July 2020, the Central Board of Indirect Taxes and Customs (CBIC) had said a cooperative housing society will have to levy and collect GST (at the rate of 18 percent) on the total amount collected as maintenance charges, if it exceeds Rs 7,500.
It had also noted that those societies with an annual turnover of more than Rs 20 lakh or less will not have to register under GST.
Smaller CHS with an annual turnover of Rs 20 lakh or less do not have to register under GST. Thus, they do not have any GST obligation, irrespective of the quantum of maintenance charges. The AAR had held the CHS’s activities towards its members have to be a ‘taxable supply’ under the GST laws.
The South Mumbai society that had filed an appeal with the GST AAAR, Maharashtra bench, had like other societies collected maintenance charges from its members such as water charges, electricity charges, property taxes, contribution to repair and maintenance fund, contribution to the sinking fund, car parking charges, interest on default charges as also property taxes.
The housing society had sought a clarification on whether these activities amount to supply and whether they are liable to GST as also whether they are correctly discharging their GST liability for which invoices have been raised on the members of the society.
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