GST charges on society maintenance in Maharashtra

The Maharashtra bench of the GST Authority for Advance Ruling (GST-AAR) has addressed certain issues pertaining to the Goods and Services Tax in the state.

Cooperative societies in Maharashtra faced one of the biggest problems related to GST. The new ruling addressed this issue in detail.

The GST-AAR was mostly concerned about the questions raised by the Mahindra Splendor Cooperative Housing Society regarding society maintenance. Society maintenance fee is chargeable under the Goods and Services Tax Act. This means that the collection made from flat members will also contribute to the GST levied on the sum.

The bench stated that the GST will be levied and collected on the entire sum in case the monthly charges collection exceeded ₹7500 per month. Previously, there was confusion about paying GST on the differential value in excess of this threshold. 

Here’s an example to simplify the case

You are charged a society maintenance fee of ₹10,000 per month. Then the GST will be levied on the entire sum of ₹10,000, not on the differential value of ₹2500 (difference between ₹10000 and ₹7500). 

The authorities of the Goods and Services Tax have challenged a decision of the Madras High Court regarding the applicability of GST on the differential sum. Consequently, a larger bench has issued a stay order on this case, and the matter is yet to be settled. 

In addition to this, the AAR in Maharashtra also pointed out that any charges collected by a cooperative housing society due to the property tax, electricity costs and other statutory costs under the monthly maintenance fee would be excluded from the monthly threshold limit of ₹7500.

Furthermore, if the cooperative housing society provides a service such as the pumping and provision of municipal water or recycled water for flushing, GST will be levied on these costs. The AAR in Maharashtra stated that no tax credit would be given for any heavy expense that could increase the lifespan of an asset that is capitalised.

The challenge raised by the Mahindra Splendour Cooperative Housing Society was that these expenses (sinking and repair funds, education and election funds) act as a preventative measure. They are safety nets for future expenses and emergencies. Mahindra Splendour CHS said that these charges were collected in the form of deposits. They were charged as per the purposes stated in the by-laws: future expenses or unforeseen circumstances. Thus, they should not be charged under the Goods and Services Tax.

The answer given by the AAR is that the amounts for sinking and repair funds are charged per percentage, as per the by-laws of CHS. This is also in accordance with the circulars that were issued by the Registrar of Co-operatives. When the sum is taken as a deposit, it suggests that the sum is refundable. However, the maintenance money charged cannot be refunded to the members. Thus, the GST on these funds are effective immediately and not in the future, say when the funds are actually utilised.

So if the maintenance fee is saved for a future building repair, you will still need to pay the GST for it now. It will not be levied when you are actually using the money for the building repair in the distant future. Education and election funds are also not considered to be deposits and are thus chargeable under GST.

Small CHS does not count for GST

The Goods and Services Tax is not applicable for small cooperative housing societies. This includes any CHS with an annual turnover of less than or equal to 20 lakhs. They do not have to register and thus are under no obligation to comply with this ruling. This comes as a breather as Maharashtra has many cooperative housing societies which cannot churn out the amount needed for GST.

Conclusion: Take the GST-AAR in Maharashtra seriously

Authorities do take into account the rulings of the GST-AAR in Maharashtra. This means you need to take this into account when calculating the maintenance fee of a cooperative housing society. While the new ruling cleared these arenas, a decision is still pending on certain applications of the GST. Hopefully, these decisions will get resolved in the near future.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.