Service tax was imposed on group housing societies in 2012; societies which collected less than Rs 5,000 from a member were not taxed but those who charged more than that were taxed on whole amount. GST imposed similar levy but raised the floor level to Rs 7,500 on 25.1.18. A public debate has begun if housing societies can claim exemption for Rs 7,500 in case they charge more than Rs. 7500 in which case they would pay tax on that portion of charge which exceeds Rs 7500. This article examines the nature of the exemption under the new law.
Resident Welfare Association is an exemplary model of grass root democracy where there is very little distance between the administration and the residents. The elected executives of RWA provide voluntary service. Typically pensioners opt to take such responsibilities. The Registrar of Co-operative Societies makes a minimal intervention in housing society matters. Societies are exempt from income tax and their interaction with different agencies is limited to their role as a consumer of public services.
In GST law definitions of taxable supplies have cast the tax net very wide much farther than the Government’s intention to collect taxes; a housing society has been specifically defined as a taxable entity, though a similar exemption to that in service tax regime has been granted. A view is being expressed in different fora that this exemption to societies is not available if their monthly subscription exceeds Rs. 7,500. The argument is that Government had no intention of bringing about any change in the system of taxation and the same exemption notifications were copied in the GST laws. The old law taxed housing societies on the whole amount if the maintenance charge exceeded Rs 5000 which was the floor level set then. It is being argued that following the same principle if housing societies charge more than Rs 7,500 they would have to pay GST on the whole amount charged.
The confusion has been created because a Govt Press Note issued recently stated that 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 (revised to Rs 7,500 on 25.1.2018) and the annual turnover of RWA by way of supplying of services and goods is also Rs. 20 lakhs or more. It also said that there is no change made to services provided by the Housing Society (RWA) to its members in the GST era. This press note was meant to allay fears that the GST regime had increased tax burden on housing societies but it nowhere says that exemption will have to be forsaken if the monthly contribution exceeds Rs 7,500.
This view being canvassed is incorrect because the GST legislation is vastly different from that of service tax. The exemption notification 25/2012 under the Finance Act 1994 is not identical to notification 12/2017 dated 28.6.17 as amended by notification 2/2018 dated 25.1.2018 issued under GST. The terms of exemption in the two exemptions are different. In the service tax notification exemption is granted to a certain category of service, a service that is charged at less than Rs. 5000. In the GST notification exemption has been granted to a portion of tax liability which is in excess of a certain amount. The language suggests that the GST notification visualises that the taxable value can be more than Rs. 7,500 per month and that tax is exempt up to a value of Rs. 7,500 but not above that. This implies that if the amount exceeds that certain amount then the tax collection would be restricted to that extra amount in excess of Rs. 7,500.
There is further reason to think that this is correct interpretation when we compare it to exemption notification 8/2017-Central Tax (Rate) dated 28.06.2017. The exemption in 8/2017 has been granted to supplies from unregistered persons but it carries a rider in a proviso which states as follows:-
“Provided that the said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.”
If the intention of the Government had been to deny exemption to housing societies that charge more than Rs 7,500 per month, they would have put a similar proviso in the notification of RWAs which they did not.
Many housing societies are feeling the strain of keeping their maintenance charges below Rs 7,500 and some may have begun showing collections of part of monthly charges as creation of sinking fund. There is no reason to resort to creative accounting practices to be able to claim the benefit of the exemption. In case they charge Rs 8,000 on monthly basis, they need pay GST on Rs 500 only and they may claim exemption on Rs 7,500.
The author retired as the Chief Commissioner of Customs and Excise and has experience in conducting litigation for the Government. He has been active in suggesting legislative changes of which many have been accepted. He served as an advisor to Ministry of Finance in the Islamic Republic of Afghanistan for customs modernisation and reform. Currently, he defends tax payers against action of the department of revenue in India.