“However, even if you are paying more than Rs 5,000 per month as maintenance charges, if total collections of the CHS are less than Rs 20 lakh a year, the society will not have to register under GST. Consequently, it will not be liable to impose GST on taxable services — such as maintenance charges, parking charges, et al. Smaller societies with lower annual collection (revenue) are likely to be out of the GST ambit,” says Yusuf Hakim, indirect tax partner at CNK & Associates.
The FAQs say: “Reimbursement of charges or share of contribution up to an amount of Rs 5,000 per month per member, for sourcing of goods or services from a third person for common use is not liable to GST.”
Maintenance charges are collected by a CHS for purposes like providing security, lift upkeep, maintenance of common areas and are typically a reimbursement for expenses incurred. In tony areas or luxury societies which have facilities like a club house, gym or swimming pool, monthly maintenance charges are steep, running up to over a lakh. The annual collection of such societies are typically far higher than the Rs 20 lakh threshold. So, GST will have to be levied by such societies.
The FAQs also address specific queries on other charges collected by a CHS, such as property tax or water tax as levied by the Municipal Corporation of Greater Mumbai (MCGM).
In this context, the FAQs say: “Services provided by government or local authorities to persons other than business entities are exempt from GST.” Thus, if property tax or water tax is collected by the CHS on behalf of the MCGM from individual flat owners then GST is not chargeable. Similarly, GST is not chargeable on non-agricultural tax or electricity charges collected under other statutes from individual owners. The FAQs add: “Sinking fund, repairs & maintenance fund, car parking charges, non-occupancy charges, or simple interest for late payment of dues owed to a CHS will attract GST as these are collected for supply of services meant for members.”
While many of the illustrations contained in the FAQs relate to a CHS which is in Mumbai, the explanations given will apply to any CHS across India.
“In the past, courts have consistently held that no service tax can be levied on various charges collected by a CHS from its members, based on the principle of mutuality. This principle means that the society provides services to itself, which cannot be taxed. This issue is pending at the Supreme Court. The erstwhile service tax is now part of the GST regime and the same tenet laid down by the courts should hold good. To this extent, the FAQ detracts from judicial decisions,” says Sunil Gabhawalla, chartered accountant and GST expert.
Hakim concurs. He further illustrates that should the CHS go ahead and register under GST some specific challenges will arise. A sinking fund is one to which members of a CHS contribute money over a period of time to meet the eventuality of reconstruction. No definite service or contractual obligation is involved. It is obligatory for a CHS to have a sinking fund under the Maharashtra Co-operative Societies Act, 1960, and its rules. “The issue here is what point of time would the sinking fund be subject to GST levy? My view is that such contributions are in the nature of deposits and should fall outside the GST ambit at the time of collection. A GST levy would be triggered only at the time of utilisation of the sinking fund. For contributions to a repairs & maintenance fund, a similar grey area arises if a contribution is collected for a future contingency and not for meeting current repairs,” says Hakim.
Hakim also questions whether a CHS is equipped to handle the plethora of compliances under GST. For instance, if a society registers itself under GST, supply of goods or services to it by unregistered dealers will result in the CHS having to bear the GST liability of the supplier under the concept of reverse charge mechanism, he says.
(This article was originally published in The Times of India)