Will the order requiring full payment of GST if society upkeep exceeds Rs 7,500 per month open a Pandora’s box?

The Maharashtra bench of the GST Authority for Advance Ruling (GST-AAR) has ruled that if monthly costs collected from members of a housing society exceed Rs 7,500 per month, GST will be charged on the total amount rather than the differential value.

According to tax experts, this might open a Pandora’s box because societies may have difficulty recovering GST arrears from owners or tenants who have moved away over time. With society collections suffering as a result of the coronavirus pandemic, members may face an additional burden.

The Madras High Court declared in July that only amounts collected by residents welfare associations (RWAs) in excess of Rs 7,500 per month per member are taxable under the GST Act.

It overturned the ruling of the Tamil Nadu Authority for Advance Ruling in 2019, which stated that if a housing society’s monthly collection exceeds Rs 7,500 per flat, GST at the rate of 18% would be imposed on the full amount, not just the difference.

The GST AAR decision came ahead of a hearing in the case by a division bench of the Madras High Court on December 9.

The Maharashtra AAR further stated that charges collected by cooperative housing societies on property tax, power charges, and other statutory fees that are included in monthly maintenance bills will be exempt from the Rs 7,500 monthly limit calculation.
Because these funds are not deposits, GST will be applied to the money collected from members for the sinking fund, building repair fund, and election and education fund.

Deposits are refundable, but because the sinking fund is collected in accordance with the Co-operative Societies Act, it is not.

“The tax officials argue that if a contribution surpasses Rs 7,500, the entire amount should be subject to GST.” This is based on a July 2019 circular, whereas societies are relying on a single bench Madras High Court ruling that invalidated the circular. The dispute is expected to reach a conclusion when we have a clear judgement from the Division Bench, as the Madras High Court ruling has been delayed,” noted Harpreet Singh, Partner, Indirect Taxes at KPMG in India.

“Also, if the full payment is considered taxable, it will be extremely difficult for societies to reclaim GST arrears, given owners/tenants may have changed over time,” he says.

‘Collection levels have decreased.’

According to housing society members, such decisions will raise a number of concerns, particularly in light of poor maintenance collections following two waves of COVID-19.

“Ideally, all cooperative housing societies should be free from the GST bracket. And, if this is to be kept, it should only apply to the difference amount. The maintenance payment for normal maintenance procedures is already proving difficult to collect for welfare organisations. Residents may experience discontent as a result of the increased financial burden, according to Rajiva Singh, head of the Noida Federation of Apartment Owners’ Association (NOFAA).

What are the responsibilities of homebuyers’ associations?

The Homebuyers Welfare Association collects maintenance fees from residents on a per-square-foot basis. Housekeeping, security, and other costs are all incurred from there.

“GST Notification 12/2017-CT (Rate) exempts such charges from GST levy ‘upto’ Rs.7,500 per member each month.” According to Vivek Jalan, partner at Tax Connect Advisory Services LLP, “the GST authorities construed this in a way that confirms levy of GST on the total contribution to a RWA when the contribution exceeded Rs.7,500 per member per month.”

The Madras High Court overturned the GST authorities’ circular, ruling that the term “up to” denotes an upper limit. It’s synonymous with the phrase “until,” and it signifies that any amount up to Rs 7,500 is GST-free.

It also held that where the legislature intended for the exemption to apply only in cases where the amount charged does not exceed a specified monetary limit, the statute expressly states that the exemption will apply only in cases where the gross amount charged for such service does not exceed a specified amount in a fiscal year.

There is no such statement made here. For Maharashtra taxpayers, the Madras High Court Order is compelling but not binding.

“In contrast to the High Court’s decision, the Maharashtra AAR has ordered that GST be paid on the total amount of maintenance charges if it exceeds Rs.7500 per month per member,” Jalan said.

The residents’ associations must now decide whether to obey the Madras High Court’s judgement and stop charging GST or to continue charging GST on the entire amount if the monthly price per member exceeds Rs 7,500.

It should be emphasised that the Madras High Court’s decision will be binding on the appropriate state’s tax officials. Taxpayers in other states can dispute the GST circular in their own jurisdictional high court if they want a similar relief.

There is a good probability that the administration will appeal the high court’s decision to the Supreme Court. In addition, the law might be amended retroactively, as has already done in a similar case contesting the taxation of the idea of mutuality, he noted.

Taxpayers should exercise cautious until the Supreme Court rules on the issue. It’s worth noting that AAR orders only apply to the applicant and no one else. It should not be a reason for any other taxpayer to pay tax retroactively as a result of this.

If the fee per member surpasses Rs 7,500 per month, a taxpayer may continue to pay taxes on the entire amount prospectively until they file a writ and seek specific relief from a high court, according to Jalan.

The GST Appellate Authority for Advance Rulings (AAAR) Maharashtra bench upheld an earlier order of the GST Authority for Advance Rulings that GST be levied on maintenance charges collected by cooperative housing societies if the monthly subscription or contribution charged from members is more than Rs 7,500 per month and the annual aggregate turnover is Rs 20 lakh or more in November 2020.

The Central Board of Indirect Taxes and Customs (CBIC) announced in July 2020 that if the total amount received as maintenance charges exceeds Rs 7,500, the cooperative housing society will be required to levy and collect GST (at the rate of 18%).

It further stated that societies having an annual turnover of less than Rs 20 lakh will be exempt from GST registration.

Smaller CHS with an annual revenue of less than Rs 20 lakh are exempt from GST registration. As a result, regardless of the amount of maintenance payments, they are exempt from GST. According to the AAR, the CHS’s actions aimed at its members must be considered a “taxable supply” under the GST legislation.

The South Mumbai society, which filed an appeal with the GST AAAR, Maharashtra bench, collected maintenance charges from its members such as water, electricity, property taxes, contribution to the repair and maintenance fund, contribution to the sinking fund, car parking charges, interest on default charges, and property taxes, just like other societies.

The housing society wanted to know if these activities are considered supplies and if they are subject to GST, as well as if they are correctly discharging their GST liability, for which invoices have been issued to society members.

Source: Moneycontrol