Service Tax for Housing Societies and Apartment Complexes – impact of Budget 2012

There have been Drastic Changes in the Service Tax law as applicable to Apartment Owners Associations or Cooperative Housing Societies, as presented in Budget 2012. These changes are applicable from 01-July-2012. We compile below all the changes.  A circular with clear details from the Service Tax Department is still awaited. Below have been compiled with inputs from two leading Society Accounting Firms – Firm led by CA G. Pandit in Bangalore and a Firm led by M. Yennagudde in Mumbai. Please note, these are interpretations of the actual Budget Proposal. Please do consult your Auditor before making relevant changes to your accounting process.

Summary, for those in a hurry:

1. Almost every Society will be eligible for Service Tax Registration (Income above Rs.10Lakh/year) [Update on 16-June-2012] 1. Every Society needs to re-calculate whether it is under Service Tax purview or not. [Update on 16-June-2012] 2. Exemption of Rs.5000/month/member. An owner of Multiple Flats will almost always exceed this. 3. Almost all Income Heads will come under Service Tax purview, including Funds, Utility charges etc.

Service as defined in this Budget: “ Service by an unincorporated body or an entity registered as a society to own members by way of reimbursement of charges or share of contribution:– (a) …………….; (b) for the provision of exempt services by the entity to third persons; or (c) up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex; “

As a Treasurer, what do I need to know about Service Tax

This is a Tax that you collect from each Member (Owner of the Flat or Villa), along with the Bill (e.g., Monthly Maintenance Bill). The Tax is paid to the Government on a monthly basis, and returns are filed in a quarterly or half-yearly basis. The rate for the tax is 12.36%.  E.g., if you charge Rs.6000/month maintenance for a flat, the total amount to be collected from the Member is [Rs.6000 + 12.36% of Rs.6000]

Which Societies are Taxable

Before 01-July-2012:

Only Societies that collect more than Rs.3000/month for any flat.

From 01-July-2012:

"All AoAs registered as society …. providing services to its members in terms of maintenance of common areas, running and operating of common utility services ……to its members…….by sourcing of goods and services from third persons……. " Interpretation 1 All Apartment Owners Association / Housing Societies to come under Service tax rules ….having total collection revenue in excess of Rs 10.00 lacs in a year. Interpretation 2 All Apartment Owners Associations/ Housing Societies where the taxable Income [ i.e total receipts less exempted amounts ] during last year exceed Rs 10 lacs are required to be registered under Service Tax and pay the same. [Update on 16-June-2012] Find out how to calculate the Taxable Income of your Society Per ApartmentADDA’s knowledge a typical Apartment/Villa Complex with more than 50 flats, located in the Tier I & Tier II cities will have taxable receipts  greater than Rs.10 Lakh.  All such Societies will need to have Service Tax Registration. [Update on 16-June-2012]

Which Income Heads are Taxable

Before 01-July-2012

Uncertain. Each Society followed guidelines from its respective Auditor, that ranged from highly conservative (including ALL income heads under ST purview) to highly liberal (including only Housekeeping under ST purview).

From 01-July-2012

"Levy charged to its members …..by way of reimbursement of charges or share of contribution……." Interpretation 1 Reimbursement charge means charge levied on the members to recover the cost incurred in providing maintenance services …..by procurement of goods and services obtained from third party. (incl utility services such as water and electricity) Share of contribution means indirect charge recovered ….thru contribution to spl reserves funds , such as sinking funds and the like. Withdrawal from spl capital reserve funds, FD interest taken to corpus reserve funds also would amount to share of contribution Interpretation 2 All reimbursement of expenses,  [ covering mun. tax, electricity, water charges, administrative expense, repair & maintenace exp, all AMCs, etc. and All contributions, [ covering Sinking Fund, Repair Fund, Share Transfer Premium, Vehicle parking charges, non occupancy charges , etc.

Which Income Heads are Exempt

Before 01-July-2012

Uncertain.

From 01-July-2012

"Exemption is in respect of “reimbursement charge or share of contribution” up to an amount of Rs 5000/- pm per member for .........." Interpretation 1 Aggregate the following charges 1) Charge levied in terms of monthly maintenance charge on the member or any recovery made from him in any form 2) Share of contribution to sinking or any other special fund 3) Withdrawal of any amount from past fund and applying current FD interest to corpus funds. Where the above aggregate exceeds Rs.5000/month/member, Service Tax to be collected on the receipt from that particular Member. Interpretation 2 The exemptions are a.   All payments made to local authorities ... Municipal Tax.  [ Paid to Municipal corporation  ] … Water Charges [ paid to Municipal Corporation. ] b.  … All payments made to Government [ Central and State ] … N A Tax.

If One Member’s collection exceeds Rs.5000/month, collect from All?

Before 01-July-2012

Yes, as interpreted by majority Auditors.

After 01-July-2012

No. Service Tax to be collected only from the particular Members for who the receipt exceeds Rs.5000/month.  This is an unanimous interpretation.

We have Commercial Units also in our Society (e.g., Shops)

"We have yearly collection more than Rs. 10Lakh. Collection per member per month is less than Rs.5000. But we have Commercial Units (shops) in our Society. Do we need to collect Service Tax?"

Before 01-July-2012

Service Tax was not levied in most cases.

From 01-July-2012

Service Tax applicable to the Commercial Units, no exemption applicable. The Exemption is applicable for Residential Units only.

What changes do I make in my ADDA?

Check this in the following Blog Post: Applying July-2012 Service Tax changes in your ADDA If you are an Admin User of a Premium ADDA (have premium Subscription Agreement with ApartmentADDA), please join the conversation here: ApartmentADDA Admin Users



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Comments

  1. p.v.kulkarni says:

    KASTURI coop.hsg.society , flat 1101.

    service tax may not be applicable to kasturi chs,as the society will be formed in July onwards.In 1st yr.the charges will be minimum say around 1250/1500 pm

  2. Ravi Menon says:

    Service tax for the maintenance charges being paid to the association or society is some thing to be deplored. The Associations/societies should make their representation through the elected representative to revoke such rules formed by the Ministry of Finance. They for the sake of finding source of income from the public are framing rules and becomes part of the government hierarchy and the officialdom who are completely prone to the sickening corrupt practices. What the governments are doing from the funds being collected from the public? Nothing but looting by the Ministers and the ministerial department staff
    by approving/launching development projects and plans and under its cover indulge in making money for themselves. This is in a way, pick-pocketing of the public at large. We protested the Britishers by non-cooperation. Let us launch such a movement to stop wrong moves by these men at Government work places. who are suppose to be apostles of good governance.

  3. sagar says:

    How much service tax will be applied on new flat which is under construction and on what amount?

  4. nagesh says:

    Note that the common property of an apartment is owned by “Association”, defined in KAOA as “group of owners” represented by the office holders. This is more like splitting the bill at a restaurant. The MC does not provide any service to the owners (association-members). In that light, is ST still applicable?

  5. Suresh jain says:

    Q. Whether an Apartment Owners Residents Association collecting services charges, interest on late payment or corpus fund, sinking fund etc. is liable for Service Tax on the amount collected from its members.

    Ans. :-
    1. As per the Service Tax Law, w.e.f. 01.07.2012 all the services provided by a person to any person are liable to service tax unless the services is specified in the Negative List or is exempted.
    The notification Number 25/2012-ST dated 20.06.2012 exempts Service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution -
    (a) as a trade union;
    (b) for the provision of carrying out any activity which is exempt from the levy of service tax; or
    (c) up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex;

    A careful analysis of the clause (c) above brings home the following :-

    1. to be eligible for exemption
    a. the entity has to be either an unincorporated body (which can be a profit making or non-profit making organisation) or it should be a non-profit entity registered under any law;
    b. The collection of amount on account of reimbursements or contribution should not exceed Rs. 5,000/- per month per member of the housing society or a residential complex;
    2. The service provided to the members is sourcing of goods e.g. diesel, water, cleaning material, hard-wares, electrical goods, machinery etc. or services e.g. security, house-keeping, etc. for common use of the members. Such service is to provided by way of reimbursement of charges or share of contribution.
    3. The collection of Sinking fund or Corpus fund is a collection of contribution from the members for sourcing of Capital goods or service like painting or laying roads etc. and therefore has to be taken into account while determining whether the amount collected is more than Rs. 5000/- per month per member or not.

    Therefore, the collection of any amount from the members by what ever name or description is liable to Service-tax if the such collection exceeds Rs. 5,000/- per month per member and the collection is for the sourcing of goods or service even if on a future date.

    Secondly, the amount charged by the association on account of renting the the shops or halls for marriage/parties/seminars to it members or a third party is chargeable to service tax.

  6. Q- We are the members of a Co-operative Group housing Society and constructing the flats. Our contractor is charging service tax on construction activities. Sir please clarify that service tax on construction activities of Co-operative Group housing Society is chargeable, while it is for personal use of individual members?

  7. Amol says:

    Hello Sir,

    I booked the 2BHK flat in Pune in June 2010 @ Rs.1800000/-. I’ll get the possession of the flat in next 8-10 days. Now builder is asking me to pay Service Tax of Rs.40000 on the amount I have paid to him till date and on the amount I suppose to pay him at the time of possession.

    Kindly advice me in case I need to pay service tax to the builder EVEN IF I have not yet get the flat possession.

    Thanks in advance,
    Amol

  8. Vidhya says:

    How do define a member if the apartments are jointly registed by more than one individual. These days apartments are registered in joint names for increasing loan eligibilty, in such cases are the members treated as 2 or more or only as a single member per flat?

  9. Chetan Gupta says:

    hi vidhya. normally the first name registered in the Sale Deed of the apartment is registered as the member of the society. The other owner may be registered as ‘associate member’ but will not have voting rights.

  10. I C Jindal says:

    i am having flat in vaishali (ghaziabad) jointly with my
    wife.montly maint is about 6000 per month which iclude maint,club charges,power back up charges.socity is being maintained by rwa.can i take seperate 2 bill one for maint another for other charges.can i also take 2 equal bill one for me another for my wife.pls advice so that service tax not to paid by me.

  11. SANTOSH KHAIRWAR says:

    If builder is demand late services tax then who is responisble for Interest? Builder or Buyer?

  12. Santosh Ashtekar says:

    I got possession in reconstructed building at Vikhroli(E), comes under S ward of Brihanmumbai municipal corporation. I would like to know what will be property,water and other taxes per square feet to be paid to BMC?. Is it varying area to area in same Vikhroli territory. Please reply.

  13. Velan Mudaliar says:

    Builder is asking for the service tax of 4.09% of Registration value. Is this applicable to the buyer who has done the flat registration in Oct 2011. And why now builder is asking from the flat owner for the same. For salaried person under which catagery is this service tax will come under for tax exemption.
    Please advice.

  14. I would like to know if I have to pay Service Tax during registration of my Flat although I have cleared all dues by December 2010 to the promoter & how much it may be on Rs. 12 lac at west bengal.

  15. S.R.Banerjee says:

    Our society is not a profit making society. The auditor wanted the accounts in Profit and Loss format as prescribed in Rules 2011 and submitted report accordingly. The General body did not approve the accounts. Can we ask for reaudit in Income and expenditure format. What are the ways and means

  16. S.R.Banerjee says:

    Our co-operative Housing society is a non profit making society and is supposed to prepare accounts in Income & Expendituer format as against Profit & Loss format. The Managing committee prepared the accounts in the profit and loss format as advised by the auditor instead of getting the Income and expendiiiture format approved by the Registrar. What are the ways and means to get it reaudited?

  17. Anil Jain says:

    Hi
    Can someone let me know whether other charges which builder / developer collects from the flat owners before handing over the final possession is liable to service tax @ 12.36%. Such other charges includes maintenance charges for 18 mths, development fees payable to BMC, club house charges, legal formation charges, etc…
    Would appreciate if you can help me with any updates on this issue. I have checked with other people who informed me that few builders are charging whereas few are not. Where exactly is the disconnect.

  18. umesh kulkarni says:

    Hi
    Can someone let me know whether other charges which builder / developer collects from the flat owners before handing over the final possession is liable to service tax @ 12.36%. Such other charges includes maintenance charges for 24 mths, development fees payable to TMC, club house charges, legal formation charges, etc…
    Would appreciate if you can help me with any updates on this issue. I have checked with other people who informed me that few builders are charging whereas few are not. Where exactly is the disconnect.

  19. TAPAN SARKAR says:

    I PURCHASE ONE FLAT ON DURGAPUR (WEST BENGAL) FOR THAT I HAVE TO PAY SERVICE CHARGE FOR PARKING AREA OR NOT?

  20. Manish Jhunjhunwala says:

    Hi

    Can someone let me know whether maintenance charges which builder / developer collects from the flat owners before handing over the final possession is liable to service tax @ 12.36%.
    The maintenance charges are for 24 months.

  21. tk chattopadhyay says:

    there is mno service charge for open garage space