Several housing societies that created a “sinking fund” or future repair funds are set to face additional taxes in the form of goods and services tax (GST) on this amount following an advance ruling.
GST at 18% is applicable on repair and maintenance funds and sinking funds collected by residents’ welfare association (RWA) or Housing Society if the total value of charges exceeds the threshold limit of Rs. 7500 per month per member, Maharashtra Authority for Advance Ruling (AAR) said.
In most cases housing societies collect money from residents for future contingencies.
“This ruling once again accentuates the fact that nomenclature, collection mechanism, form is not detrimental to the GST taxability. It would be worthwhile to carefully examine the nature of all collections made by RWAs from their members (such as reimbursem*nt of expenses, common area charges, deposits etc.) to determine taxability under GST,” said Harpreet Singh, Partner, KPMG India.
The ruling is set to impact several housing societies across India.
While AAR rulings are only applicable to the company that has approached before the bench, it tends to create a precedent in the law, say tax experts.
Over the years housing societies, especially in Mumbai tend to collect certain amounts from its residents as maintenance expenses. A part of the amount is set aside for future expenses.
In some cases this amount is also invested in certain instruments. Up until now most housing societies did not pay indirect tax on this amount, say industry trackers.
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