Goods & Service Tax (GST): Background & It’s effects on Housing Societies

What is GST?

GST – Goods & Services Tax is all set to be one of the most impactful economic reforms to be implemented in last few decades and is already being labeled as a major social reform too.

What Is Wrong with The Current Tax System?

Though India is politically one country, economically it is fragmented. There are multiple taxes when there is commerce across state borders. Consequently, it increases costs for everyone and makes economic activity within India for Indians complicated.

Presently, taxes are of two types – Direct and indirect, which are levied either by the central government or the state government. Direct taxes, like your income tax come under the central govt. And taxes levied on the manufacture of goods and providing services are called as indirect taxes, they are also levied by the central govt. Taxes on consumption are exclusively levied by the state government.

The issue with this system is that sometimes, a product may have multiple tax layers to it. Eg – consider a dress. It first needs to be manufactured before it is consumed. So the Centre levies a tax at the factory level and then the state levies a tax at the shop (VAT), just before it is consumed. On an average, excise duty is charged at 12% and VAT at 18%, that means an average consumer pays 26% in taxes. The resultant MRP is therefore, a lot higher than the actual retail price.

GST is an indirect tax and will attempt to create a single market for goods by taking away the tax barriers between the various states.

For a detailed take on GST and it’s impact on Housing Societies, read our Expert Articles:

GST impact housing societies

Is GST Beneficial to Us?

Yes, we certainly feel so. As of now, the average consumer has very little visibility into how much of the price he pays for something is taken up by taxes. We do see the VAT in the bill, but before the product reached the shop, the center has levied an excise tax on it. With GST, taxes will be levied solely for consumption and is therefore, expected to bring about more transparency. Also, there will be no more “tax on tax” system.

GST impact on Housing Societies Maintenance Dues & other collections for RWAs/Management Committees

RWAs or management committees are usually acting purely as agents, where they collect money from residents for services availed by them and then paid on to the service provider without charging any commission or a consideration by any other name. Here exclusion from the value of taxable service would be available.

However, if the service provider bills the RWA or the Association, example in the case of electricity bills issued in the name of RWA, in respect of electricity consumed for common use of lifts, motor pumps for water supply, lights in common area, etc., since there is no agent involved in these transactions, the exclusion from the value of taxable service would not be available.

Service Tax exemptions in GST for Housing Societies

  1. Services by way of renting of residential dwelling for use as residence
  1. For any registered housing society or a residential complex, maintenance dues paid by its members of an amount upto Rs 5000 per month, service tax is exempted
    1. Housing societies will need to charge 18% GST to its members if maintenance recovery is more than Rs.5000/- p.m. per member & if total maintenance recovery by a society exceeds Rs. 20 lacs p.a. Accordingly, only those societies who fall in this category (i.e. fulfilling both the conditions) will need to register under GST & charge from July onwards.
  1. Service Taxes are exempted for labour contracts used for the construction of either single residential unit or a residential complex.

Here you will find more details on the various expenditures/collections for RWAs / Co-operative Housing Societies.

Further announcements from the finance ministry towards the exact impact of GST on each of these items is expected at the end of May or early June 2017.

We’ll try to keep you updated on the latest announcements towards GST and the impact of the same on housing societies.

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