Issues on Valuation of Supply of Services by RWA’s to their Members

A Resident Welfare Association is an association of people who live in a residential cooperative society. Housing Society’s purpose is to provide housing plots to its members or dwelling houses or apartments; or, if the plots are already owned, to provide certain amenities and services to its members. This includes collecting dues from its members and remitting to statutory authorities like property tax, electricity costs, and water tax.

It may be mentioned that supply of service by RWA (unincorporated body or a registered non-profit entity) to its own members by way of reimbursement of charges or share of contribution up to an amount of Rs. 7,500/-* per month per member for providing services and goods for the common use of its members in a housing society or a residential complex are exempt from GST.

*Prior to 25th January 2018, the exemption was available if the charges or share of contribution did not exceed Rs 5000/- per month per member. The limit was increased to Rs. 7500/- per month per member with effect from 25th January 2018. [Refer to clause (c) of Sl. No. 77 to the notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017]

Press Release by CBIC dated 13-Jul-2017

RWA shall be required to pay GST on monthly subscription/contribution charged from its members if such subscription is more than Rs. 5,000 per member (7,500/- after 25-Jan-2018) and the annual turnover of RWA by way of supplying of services and goods is also Rs. 20 lakhs or more.

Circular No. 109/28/2019-GST dated 22-Jul-2019

Q5. How should the RWA calculate GST payable where the maintenance charges exceed Rs. 7500/- per month per member? Is the GST payable only on the amount exceeding Rs. 7500/- or on the entire amount of maintenance charges?

Ans.: The exemption from GST on maintenance charges charged by an RWA from residents is available only if such charges do not exceed Rs. 7500/- per month per member. In case the charges exceed Rs. 7500/- per month per member, the entire amount is taxable. For example, if the maintenance charges are Rs. 9000/- per month per member, GST @18% shall be payable on the entire amount of Rs. 9000/- and not on [Rs. 9000 – Rs. 7500] = Rs. 1500/- .

Views of Court

M/s TVH Lumbini Square Owners Association approached Tamil Nadu AAR [(2019) 107 taxmann.com 329 (AAR – TAMILNADU)] to have clarification on the amount chargeable to GST and Tamil Nadu AAR held that where charges or share of contribution goes above 7500 rupees per month per member, such service will not fit above description and hence, such service is not exempt; such services are then fully chargeable to GST at applicable tax rate.

In a judgment rendered on 01/07/2021 in Greenwood Owners Association vs. UOI [TS-321 HC(MAD),- 2021-GST], the Hon’ble Madras HC has finally quashed the contents CBIC Circular No.109/28/2019 – GST dated July 22, 2019, which denied basic exemption up to Rs. 7500/- per member contribution has been upheld and Resident Welfare Association is liable for GST on members’ monthly subscriptions ‘only on amounts exceeding Rs.7500, and not on the entire amount.

Conclusion

The above judgment would surely be a breather for RWA’s across the country as it has correctly laid down the position of law which had been interpreted by the authorities in a different context to deny the exemption from the basic limit also. The benefit of this judgment however may not be allowed by the departmental officers of other states except Tamil Nadu as the decisions of the High Court are binding on the subordinate courts and authorities or Tribunals under its superintendence throughout the territories in relation to which it exercises jurisdiction.

In my personal opinion, the Department will surely challenge the decision in Higher Forums as this judgement has countrywide impact & implications.