Multiple taxes, even across state borders, has always been known to make the trade in India expensive and complicated. GST (Goods and Services Tax) is a fiscal reform being made to introduce a single taxation system across the entire nation. Manufacture, distribution, and provision of goods and services, fields that pay indirect taxes, will be covered by the GST reform. Construction services and housing societies, which will now pay tax only at stages of value addition, are to be largely benefited by the implementation of the GST.
Present taxation system and Housing Societies
Service Tax Act covers the housing society charges at present. Under this, the tax is levied separately by the central and state government from all apartment owner association of housing societies whose funds exceed Rs. 12 lakhs.
Applicability of GST on Housing Societies
Before we deal with the Impact of GST on Housing Societies, let’s examine as to whether the Societies are covered under GST or not?
The Central Goods And Services Tax Act (CGST), 2017 is applicable to the dealer-person who is rendering the service or supplying the goods in its regular course of business activity.
Section 2(84) of the above act defines “Person” as follow:-
“person” includes —
- an individual;
- a Hindu Undivided Family;
- a company;
- a firm;
- a Limited Liability Partnership;
- an association of persons or a body of individuals, whether incorporated or not, in India or outside India;
- any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013;
- anybody corporate incorporated by or under the laws of a country outside India;
- a co-operative society registered under any law relating to co-operative societies;
- a local authority;
- Central Government or a State Government;
- society as defined under the Societies Registration Act, 1860;
- trust; and
- every artificial juridical person, not falling within any of the above.
Above clause (i) clearly mentions that the Co-operative Housing society will be covered under the definition of “person”
Now the question comes as to whether the activities of housing Societies be considered as “Business Activity”?
To answer this let’s examine the definition of “business” as defined under Section 2(17) of the above Act, which read as follows;
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not 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 a bookmaker 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;
The above clause (e) specifically covered a Society, thus the housing society will be considered as carrying out activities in furtherance of business and will be liable for Registration under GST.
Impact of implementation of GST
Society / RWA will be required to pay GST on monthly subscription/contribution charged from its members if such payment is more than Rs 5,000 per member and the annual turnover of society /RWA by way of supplying of services and goods is also more than Rs 20 lakhs.
Do we need to change the Billing format of the Society?
Yes, the format will have to be changed and it will be changed as a format to be notified.
Impact on the society accounting?
This is certainly going to impact the society accounting, now as the tax paid on the expense side is available under specific scenario, the party-wise details have to be uploaded and the work being done with various type of online/offline programs will undergo a major change to provide for recording detailed expenses in lieu of recording transactions as being done presently, whereby few society are paying to collect and paying taxes inefficiently increasing the cascading effects.
Will the input tax Credit be available for all the expenses incurred by the Society?
On following expenses where the taxes are paid No Input Tax Credit will be available, i.e.
- a) Electricity Expenses
- b) Stamp Duty
- c) Property Tax
Taxable/ non-taxable housing society charges under GST
- Collection of property tax: Non-taxable
- Maintenance and repair charges: Taxable
- Parking charges: Non-taxable
- Water charges:
- Non-taxable when collected to buy water for residents to fulfill basic requirements
- Taxable when collected to buy water for luxuries such as swimming pool, gardening, clubhouse, etc.
- Charges from certain members for additional benefits during the use of Swimming Pool, Clubhouse, etc: Taxable
- Share transfer fees and donations: Taxable
- Sinking fund/ Repair Fund/ Painting fund: Non-taxable
- Non Occupancy Charges: Taxable
Audit procedures to be followed under GST
If the turnover of a housing society exceeds both the mentioned limits, the following audit procedures are to be carried out by the society:
- GST Audit
- Statutory Audit
- Income Tax Audit
Benefits of GST during construction of Housing Societies
- Removal of cascading effect of taxes by central and state government
- Ease of compliance to taxes for buyers and developers
- Increase in competitiveness between constructors due to uniformity
- Provision of better quality as everyone benefits through the lower expenses on taxes
Benefits of GST after registration of Housing Society
- Reduction of overall maintenance cost of the society due to input credit benefit.
- GST charged for services such as housekeeping, repairs, maintenance, lift AMC, fire AMC, security, contract staff, accounting and auditing services and others can be claimed as a refund if there is no output liability, with minimal cost deducted for compliance. A provision for a refund as such was not available earlier.
- Service tax on the amount paid for labor during the construction of only a single unit in the society by the society members is exempted.
Implementation and acceptance of GST by the housing societies, with its reduced burden in the form of tax, is sure to be beneficial to the housing societies. Transparency during payment of taxes, ease of business due to absence control by the state at borders and improved economic efficiency due to the destination-based system of taxation would reduce the cost borne by the service providers and thus maintain the society expenses within a limit.
Getting ready with the registration on a priority basis
- Get the details of GSTRN of all the vendors and the detailed HSN or the Service code which they have obtained under GSTRN. This should be in alignment with our services.
- If your Residential Owner / Industrial Gala owners are going to claim the GST paid on society bill as Credit, then also obtain their Registration details from them, to incorporate in our bills.
- Take management policy decision in case they have to deal with the unregistered dealer ( they would have to pay GST first and then claim the credit of the same), so what are the exceptional situation in which the executing team may purchase goods/services from unregistered dealers.