[ecis2016.org] We look at how the introduction of the Goods and Services Tax, which replaced the erstwhile service tax regime, has changed the tax implications for maintenance charges levied by housing societies
Aside from paying Goods and Services Tax (GST) on purchase of property, buyers also have to pay the tax on payment of maintenance charges. In this article, we will talk about the tax you are liable to pay on the same.
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GST on maintenance charges to be 18% for flat owners paying over Rs 7,500
Flat owners will have to pay GST at 18%, if their monthly contribution to the residents’ welfare association (RWA) exceeds Rs 7,500, the Finance Ministry said, on July 22, 2019. As per the rules, RWAs are required to collect GST on monthly subscription/contribution charged from its members, if such payment is more than Rs 7,500 per flat per month and the annual turnover of RWA by way of supply of services and goods exceeds Rs 20 lakhs.
In a circular issued to field offices on how the RWA should calculate GST payable, the Finance Ministry said: “In case the charges exceed Rs 7,500 per month per member, the entire amount is taxable. For example, if the maintenance charges are Rs 9,000 per month per member, GST @18% shall be payable on the entire amount of Rs 9,000 and not on (Rs 9,000-Rs 7,500) = Rs 1,500,” it said.
On how the tax liability would be calculated for a person who owns two or more flats in the housing society or residential complex, the Ministry said in such cases the ceiling of Rs 7,500 per month per member shall be applied separately, for each residential apartment owned by him. The Ministry further clarified that RWAs are entitled to take input tax credit (ITC) of Goods and Services Tax (GST) 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.
(With inputs from PTI)
When is GST applicable on maintenance charges?
Under the earlier service tax regime, housing societies were required to register themselves under the law of service tax, if the aggregate of Society maintenance charges levied by the housing society exceeded Rs 10 lakhs in a financial year. However, under the Goods and Services Tax (GST) regime, this limit has been doubled to Rs 20 lakhs. So, if the aggregate of maintenance charges levied by the housing society exceeds the threshold of Rs 20 lakhs in a financial year, it has to register itself under the GST laws and obtain a registration number.
While computing the limit of Rs 20 lakhs, even the exempt items like recovery of property tax and electricity charges from the member, are to be taken into account. So, a housing society has to collect GST from its members, if the aggregate of the charges during a financial (whether subject to GST or not) exceeds Rs 20 lakhs. Even though the threshold limit for registration is Rs 20 lakhs for a housing society, it is not required to levy GST, if the amount of maintenance charge for each of the flat or office does not exceed Rs 7,500 for a month.
Hence, for the levy of GST from its members on maintenance charges, the housing society has to satisfy two conditions:
- The aggregate of the charges levied by the society should exceed Rs 20 lakhs in a financial year and
- The amount of the monthly maintenance charge for the particular flat or office should exceed Rs 7,500.
It may therefore be possible that a society may not levy GST in case of smaller flats/offices, whereas at the same time, levy it in respect of other flats/offices of bigger area, in case the society maintenance charges are on the basis of the area of the flat/office.
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On what component of maintenance charges is the GST levied?
It is not that the society has to levy GST on all the components billed in the invoice to the members. The housing society cannot levy GST on charges which are in the nature of reimbursement of expenses incurred by the society and recovered from members. These may include various taxes and utility payments made by the housing society on behalf of the members like municipal taxes, property tax, water bills, non-agricultural land tax, electricity bills for common areas, etc. Likewise, the contribution towards the sinking fund, is also excluded from the scope of GST. However, the housing society has to levy GST on the contribution made by the members towards the repairs funds.
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GST rates, input tax credits and the reverse charge mechanism
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Against the 12 per cent rate under the service tax regime, under GST in real estate, presently, housing societies have to levy 18% GST, on the maintenance charges recovered from its members. The housing society can avail of input credits, for the GST paid by it on various supplies received by it – for example, services like security, maintenance of lift and premises, or payment of audit fees, etc.
Although the society can avail of the input credit for such items, it cannot reduce the rate of GST being charged to its members. The society is also required to pay GST under the reverse charge mechanism, in case it is registered under the GST, on all the services or goods received by it from unregistered suppliers. The society, however, is entitled to claim set-off of the GST paid on such supplies, against its GST liability with respect to maintenance charges. (Note: Presently the mechanism of reverse charge mechanism has been deferred till September 30, 2019. Hence, the impact of such levy will not be there, till it is implemented.)
It may also happen that the society may be paying different GST rates, for the goods and services purchased by it, while the GST it charges from its members will be at 18 per cent only. While the housing society cannot reduce the rate at which it will levy GST on maintenance charges from its customers, it can reduce its maintenance charges, to pass on the benefits of input credits available to it. The exact benefit of lower maintenance charges, depends on the input credit available, as well as its liability under the reverse charge mechanism, as and when it is implemented.
With the increased frequency of having to file returns under the GST regime, the overall cost of compliance has already increased for the housing societies, especially the bigger ones. Due to the higher rate of GST, as compared to the rate under the service tax regime, as well as the reverse charge mechanism and increased compliance costs, the monthly outgo of flat owners will increase, if the society is registered under the Goods and Service Tax law.
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(The author is a tax and investment expert, with 35 years’ experience)
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