As most would agree, one of the vital reasons for success of GST is the proactiveness of this government in issuing clarifications for resolving ambiguities or apprehensions of businesses and hence, fostering their leitmotif of ‘Ease of Doing Business’. Most of these notifications and circulars issued by the government have typically addressed issues raised by businesses on account of contradictory advance rulings, concerns raised by revenue authorities and ambiguity in the law. Some of the key ones being GST rate on setting up of a solar power plant, post-supply discounts and promotional schemes.
Of these multiple clarifications, one significant clarification issued by the government recently was on the taxability of monthly subscription/ contribution charged by resident welfare associations from its members. Most of the issues clarified in this circular were as well addressed in an E-Flyer uploaded on the CBIC website – ‘GST on Cooperative Housing Societies’.
An important aspect manifested and sought to be clarified in the circular was on the calculation of the taxable value for high maintenance flats/ societies. The anticipated trigger for an issuance of this clarification was an advance ruling by the Tamil Nadu Authority for Advance Ruling in the case of TVH Lumbini Square Owners Association. In the said application, the AAR had upheld that the exemption of Rs 7,500 per member per month was only available where maintenance charges were less than or equal to Rs 7,500 per member month. The AAR had upheld that in a scenario where the maintenance charges exceeded the limit of Rs 7,500, the entire maintenance charges collected would be leviable to GST. Conversely put, it was upheld that the exemption of Rs 7,500 was not meant to occasion a deduction of Rs 7,500 per month per member from the maintenance charges collected; entailing a levy of GST not only on the net amount but the gross amount, in scenarios where the maintenance charges exceeded Rs 7,500 per month per member.
To recap, the exemption notification stipulates an exemption from the GST leviable on services provided by an 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 sourcing of goods/ services for the common use of its members. It was on the basis of this exemption, that maintenance for all of these residential complexes did not trigger a GST levy/ 18 percent additional cost for residents. However, there was an apprehension on the amount of GST payable for the luxury complexes; which typically recovered a maintenance charge of more than
Rs 7,500 per member per month. The dilemma was whether in scenarios where the maintenance charge exceeded Rs 7,500, the entire maintenance charge was leviable to GST or was only the differential ie, maintenance over and above Rs 7,500 leviable to GST. An E-flyer issued on the CBIC website contemplated levy of GST only the differential amount, ie, net of the deduction of Rs 7,500 per member per month.
In the backdrop of a disconnect between an E-Flyer and the AAR, coupled with representations made by players in this industry, the government has recently issued a circular clarifying the tax position on this. The circular clarifies that an exemption is only available in scenarios where the maintenance charges are lesser than or equal to Rs 7,500 per member per month. In cases where the maintenance charges exceed the said threshold, GST would be leviable on the entire maintenance charge collected; with no deduction of Rs 7,500 being allowed.
With this clarification, residents in high end luxury apartments should budget more for their maintenance expenses; where the association had adopted a position contrary to that clarified in the circular. To illustrate, many builders, for a maintenance charge of Rs 10,000 per flat per month, were currently only levying a GST of Rs 450 per month, however, with this clarification would now need to levy a GST of Rs 1,800 on these maintenance charges. This entailing the cost of maintenance increasing from the earlier Rs 10,450 to Rs 11,800 for the residents.
However, where in a scenario, the turnover of the association recovering these charges, does not exceed Rs 20 lakh a year, a no GST position could be possible. This has also been clarified in the circular and the earlier issued E-Flyer. While typically, a GST is not leviable, where the association procures certain supplies on which GST is payable under reverse charge or is mandated to obtain a registration under the GST law, a no GST position may not be possible; entailing an 18 percent tax cost for residents on maintenance charges.
The circular further clarifies that the exemption of Rs 7,500 per member per month is available for each residential apartment owned by a person. Hence, where a person, say Mr. X, owns two residential apartments in a complex and the maintenance charge is Rs 6,000 per flat per month, no GST would be payable on the maintenance charges collected from Mr X.
With this government’s policy of subsiding exemptions and restricting them to only basic necessities and requirements of the lower strata of society, an exemption on maintenance charges for conventionally classified luxury apartments, may be impenetrable. On a separate note, an explicit clarification by the government is quite considerable; especially in light of the inconsistency in the opinion by the AAR and that contemplated in the E-Flyer.
Abhishek Jain is Tax Partner at EY India. The views expressed are personal.
First Published: IST