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Sinking Fund Calculation and Utilization

Sinking Fund is not a new word in Co-operative Housing Society. Most of the members/managing committee members to make a suggestion to use such sinking fund for society related activities or debate its utilization/calculation without understanding its legal implication.

So lets’ understand how the word “Sinking Fund” is defined;

  • As per Wikipedia “A sinking fund is a fund established by an economic entity by setting aside revenue over a period of time to fund a future capital expense or repayment of a long-term debt.”
  • Merriam Webster defines Sinking fund as “a fund set up and accumulated by usually regular deposits for paying off the principal of a debt when it falls due”

In the context of Cooperative Housing Society, “Sinking Fund” provisions have been made under Bye-Law No. 13 (C) for reconstruction of the building when the existing building is not safe for human habitation since it is difficult for the Cooperative Housing Society (service & non-profit organization having no other source of income) to generate such a huge fund in short period of time.

This provision helps cooperative housing society to collect contribution towards this sinking fund from the society members on month on month basis and keep on accumulating year after year by long term investment in accordance with Bye Law No. 15 and directions given under section 70 of the Maharashtra Co-operative Housing Societies Act, 1960.

An outgoing member cannot ask for the reimbursement of his accumulated contribution towards the Sinking fund under any circumstance / pretext however the new buyer / member may request to know the accumulated contribution accrued against the account of the intended flat to be purchased. As and when the flat is sold or the membership is transferred this amount invariably gets automatically transferred to the buyer’s account.

Calculation of Sinking Fund Contribution:

In accordance with Bye Law No. 13 (C), the General Body can decide the Sinking Fund contribution, subject to the minimum of 0.25% per annum of the construction cost of each flat incurred during the construction of the building of the Society and certified by the Architect, excluding the proportionate cost of the land.

Most of the Cooperative Housing Society takes the decision on the Sinking Fund Contribution at the time of taking over from the builder / developer / inception, which remains constant for years together, while the construction cost of the flat keeps on increasing.

It is therefore suggested that the Managing Committee should conduct a valuation of the construction cost of each flat by  a certified Architect once in 5 year and decide the revision in sinking fund contribution in General Body Meeting.

In case of an open plot type co-operative housing society (which has purchased or taken a place of land on lease and constructed building / buildings thereon) it is not difficult to work out the cost of construction of a flat only. Most of the Cooperative Housing Society faces difficulty in working out the cost of construction of a flat in certain cases, particularly the flat owner’s society in which flats are taken by purchasers under agreements under section 4 of the Maharashtra Owners Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act 1963. A builder/ promoter / developer sells the flats on different occasions to different purchasers with a different cost for the identical sizes flats and no difference in the type of construction and the amenities provided.

The price paid for a flat proportionate land also and further that the cost of construction of a flat is not on the basis of actuals. In the majority of cases, the actual price paid by a purchaser is more than that mentioned in the agreement. It would thus be wrong to recover contribution form members at the fixed rate towards the Sinking Fund on the basis of the value shown in the agreements. In most of the cases, the builder/developer may be most unwilling to give the actual cost of construction. We therefore suggest that Cooperative society should employ the agency of an architect or a valuer, appointed by the general body meeting of the construction of the building and apportion such cost amongst costs of a flat so arrived at may be taken as the basis for fixing the amount of contribution to the sinking fund in respect of the flat/shop/garage etc.

Society without Managing Sinking Fund Properly Society with managing Sinking Fund

Utilization:

On the Resolution passed at the meeting of the general body of the Cooperative Housing Society, the Sinking Fund may be used by the society for reconstruction of its building/buildings or for carrying out such structural additions or alteration to the building/buildings, as in the opinion of the Society’s Architect, would be necessary to strengthen them or for carrying out such heavy repairs as may be certified by the Architect and on approval of General Body.

28 thoughts on “Sinking Fund Calculation and Utilization

  • We Have a Fishing Co-op Society so can we utilize our Sinking fund for purchase of Assets like Machinery,Motor car & repaire of Building & Machinery Etc.

  • we have housing society with adequate sinking fund in FD .
    my question is “can interest earned on these fd’s be used for day to day expenses to run society e.g cleaning, electric bill etc???
    experts kindly advise

  • Can this sinking fund be used to fix internal flat seepage issue? which was pending with Builder since long time.

  • 1.How to ascertain total amount accumulated in a given CHS sinking fund since inception till date.
    2. Does Govt. Have the hold over this fund & is a min. Bal. In same mandatory at end of each year.
    3.can society demand Forcefully RS.25000/- towards sinking fund from a new member who has inherited a flat in maharashtra.
    4. What is the total max transfer premium payable by new members and what is the exact AMT payable if 50% share inherited by Regd. Will & Bal. 50% acquired from nephew against deed of assignment for monitory consideration for transferring his rights share etc for a consideration.
    Pl. Help & reply in detail break up of total AMT. Payable to society by Both heirs me & my husband. I am daughter of deceased 1st named Owner member. & Nephew is her grandson
    (Father’s) heir.

    • Dear Pravin,

      Please find my pointwise reply as below;

      01. It is mandatory as per bye-law to maintain “Sinking Fund Register” memberwise. Which should have month-wise deduction / year wise. You should ask the Managing Committee to provide the copy of the register.

      02. The Managing Committee can not spend / utilize the fund unless approved by the Registrar.
      03. Society can not demand any any amount. In accordance with Bye Law No. 13 (C), the General Body can decide the Sinking Fund contribution, subject to the minimum of 0.25% per annum of the construction cost of each flat incurred during the construction of the building of the Society and certified by the Architect, excluding the proportionate cost of the land.
      04. The society transfer fee is not linked with the purchase value and society can charge max 25000/- from either party as “Transfer Fee”

      • Thanks A lot Mr. Rajeev for yr detailed pointwise reply. Pl. Clarify my foll. Doubts..1) what is the amt. Of transfer premium society can charge me. I have inherited 50% from my mother by will & Bal. 50% my nephew (my brother’s son) has assigned his rights share & taken monitory consideration from me at current MARKET VALUE of flat which I paid him. Now I am the owner with my husband as per will. 1) So is this transaction considered as transfer within family. 2) Is Transfer premium payable by outgoing member and me as membership not yet granted to me.
        3) If so how much max. Is payable by me & how much by my nephew.
        4) I understand transferee.premium is not applicable for Transfer WITHIN FAMILY . IN SHORT EXACTLY HOW MUCH am I expected to pay to society TWDS Transfer Prem. i.e.50% of RS.25000/- or just some nominal amount if so how much? What if outgoing intending member refuses to pay society. Can they hold my membership application due to default by my nephew or not?.
        Lastly society is demanding addl RS.25000/- towards Sinking fund from me under above circumstances & they say if I do not pay this over and above Transfer Prem. RS.25000/- full AMT. They will not process my application for membership. Can the pressurize me for both above payments Is it Legal and if not what is the stand I should take & what reply to give them.
        Should I insist the grant me membership & then demand sinking fund because my mother for 25 years was already paying RS.100 sinking fund to soc. & After her demise I am continuing to pay society all their bills.
        I’m not clear on above charges being demanded. I am a senior citizen & cannot afford to pay RS.50000/- only towards sinking fund & transfer premium that to for my mother’s inherited share & Bal. 50% huge AMT paid just to give due share to my nephew for assigning & relinquishment of his share/rights etc.
        Pl.. help & send me a pointwise reply with Byelaws nos if applicable so I can pay charges legally payable by me under above circumstances NOTHING MORE to society as per their demands.
        Thanks

        • Please note my reply;

          01) When the transfer of shares takes place with the family the assumption is that there is no transfer of the money. In the present case there is a transaction of the money at Market value, you will be liable to pay the transfer fee max 25000/-. As who has to pay is between both the party to decide.
          02) Society can not charge any thing more than Rs. 25000/- on account of Sinking Fund.
          03) Suggest you pay Rs. 25000/- for transfer of shares as transfer premium with a request to transfer the shares in your name.
          04) if they demand additional 25000/- take it in writing and approach the registrar.

  • Dear sir ,

    As per new By laws , to my understanding you donot need the permittion from Registrar to withdraw the amount . It is just the intimation. Request to pls confirm on getting authenticate.
    Regards,
    Prashant shah

    • Dear Prashant,

      Yes! The utilization of the sinking fund needs to be approved in the General Body Meeting and should be informed to the registrar.

  • If 50% share is inherited by (A) from mother & bal 50% share given up by 2nd Heir against monitory consideration to A, How much Transfer fee is Payable by (A) to society. Full amt. RS.25000/- OR 50℅ OF RS.25000/-.
    Is this classified as TRANSFER WITHIN FAMILY?
    Who is liable to pay Transfer fee. I.e. Transferor OR The Transferee or 50/50.by BOTH incoming & exiting intending member?.
    Lastly if this is indeed a Transfer within the Family between Grandson on one hand & Daughter/Soninlaw (all these relations covered under the Term:FAMILY Then
    Is the above amt. Applicable or is it that only some NOMINAL AMT. Is to be paid as TRANSFER Deed (by whom) as per BYELAWS. If so what is the BYELAW No. And what is the actual due amount Payable. To society.
    Pl clarify pointwise.
    Thanks

  • Dear Sir,

    In my society, for few flats the managing committee is charging 0.25,% of the carpet area and for rest they are charging as per built-up area as sinking fund. What is the correct approach-charge as per carpet or built-up area? Pls advise.

    Regards,
    Abhijeet

    • Dear Abhijieet,

      As per Bye Law No. 13 (C), the General Body can decide the Sinking Fund contribution, subject to the minimum of 0.25% per annum of the construction cost of each flat incurred during the construction of the building of the Society and certified by the Architect, excluding the proportionate cost of the land. So to calculate the construction cost one should consider common parameter.

  • An 18 year old 14 member well maintained society (new like structure) has FDs to the tune of 23 Lacs apart from sinking fund provision. Managing committee still wants to increase it by increasing the maintenance charges. Is it advisable? We are paying attention Income Tax on FD interest earned. Thanks

    • Dear Sanjay,

      There is no harm to create the fund but I would suggest to review your Sinking Fund contribution and if need be revise that.

  • Dear Sir,

    I Chandan Kumar, have purchased a flat after formation of society. Earlier Builder has taken an amount of forty thousand towards maintenance charges. After formation of society, Builder has not taken any amount towards maintenance charges. Now society is demanding transfer charges of twenty five thousand and also said that if transfer fee will not be given then share certificate will be issued to Builder.

    Question is arise that is society legally demand transfer fee. Pl guide

    Regards
    Chandan Kumar

    • Dear Chandan,

      Are you a initial member along with other. If yes they can not charges.
      But if you have purchased from the first owner then you may have to pay the transfer fee as per bye-laws.

    • The basic objective of sinking fund if to take care of major building repairs / structural repairs. If the same is used for the purpose defined in the bye-laws, it is necessary to replenish the same as quick as possible.

  • Are full transfer charges RS.25000/- or only 50% Rs.12500/- payable by me as Im already the legal heir of 50% share from my mother by Regd will & if further the Bal 50% shares of my brother’s son is transferred to me as he preferred to take money as he’s not interested in the old property.
    After all my parents sibling’s share (my brother’s) is being transferred to me by his son I.e. (my brother’s son). My brother died intestate.
    I belong to the Original ROOT FAMILY.
    Society is demanding full AMT RS.25000/- else my membership application not being processed. Pl. Clarify exact AMT. Payable by me and if not payable by heirs as per rules under which Byelaws are heirs nominees family exempt from payable of transfer charges. Thanks.

    • If there is no transaction of money for transfer of right, title and interest within family member than transfer fee is not applicable. In your case there there is a transaction of money to buy 50% shares at per market value and hence you will be required to pay the transfer fee of INR 25000/- which is mandatory. Who pays is to be discussed between the seller and buyer.

  • Thanks for yr reply but byelaw says if transfer is amongst family, or heirs or nominees or blood relations transfer fee is not applicable.
    We have not sold the property but have only given his due share by monitory consideration. I am the blood relation of ROOT FAMILY ie blood relation with my mother & brother & nephew is the son of sibling of my own parents.
    Hence it is a clear case of blood relations on both sides. We both new owners are nominees, Legal heirs & blood relation. So Dakar Sankul clearly says if transfer is amongst blood relations & family NO TRANSFER PREMIUM IS PAYABLE AS PER GOVT. CIRCULAR. THIS IS NOT A SALE OFPROPERTY BUT SIMPLY AN INTERNAL TRANSFER AMONGST FAMILY MEMBERS/HEIRS & HENCE PL RECHECK & CFM BECAUSE PAGE 19 OF SOCIETY BOOK OF RULES CLEARLY DOES NOT SPECIFY WHETHER TRANSFER IS WITH OR WITHIUT MONEY.
    PL THROUGHLY RECHECK & CONFIRM
    THANKS

    • Dear Pravin,

      I have clarified that if there is transaction of money involved then this will attract the transfer premium even if there is a blood relation. It is exempted only when there is only “Transfer of Shares of Society” but no transaction of money / payment of any consideration basis the market value.

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