Service Tax for RWA / Society / Association Circular of Jan-2014

Dear ADDA Users,

There has been a latest Circular from the Ministry of Finance, that may require you to re-evaluate the method used by you to collect Service Tax from Members.
We know this is difficult for Non-Accountants, but we will keep it simple.

STORY AS OF NOW

In 2012, a Notification was issued, which had the below wording:

"..The Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the following taxable services from the whole of the service tax leviable thereon under section 66 B of the said Finance Act, namely

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

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”

 Based on the above wording the majority consensus among Auditors across India was:

If a Member has a contribution* of Rs.6000/month towards the Society, the Service Tax is applicable on Rs.1000 (Rs.6000 – Rs.5000)

*- Contribution in this post would mean contribution towards taxable services by the Society. E.g., That amount will not include Property tax, if the Society is collecting property tax on behalf of the Govt.

LATEST DEVELOPMENT

The new Circular of 10-Jan-2014, presents itself as a clarification to the original notification. It says

#1. If member Contribution is less than Rs.5000/month Service Tax not applicable to member. <No Change from Story-as-of-now> 

#2  If member contribution is more than Rs.5000/month, there is no exemption and Service Tax is applicable on full amount. <Major Change>

#3 Service Tax is applicable only to the specific Members whose Contribution is more than Rs.5000/month. This goes to clarify the doubt that if in a Society 2 members have contribution exceeding Rs.5000, service tax need not be collected from all Members. <No Change from Story-as-of-now> 

#4 Threshold of Taxable Service by the Society of 10Lakh / Financial year to be eligible to collect Service Tax. <No Change from Story-as-of-now>

#5 Non-Taxable service : Where service provider is acting as Pure agent those services comes under Non taxable services. E.g., if the Society is collecting Electricity Bill payment from Individual Flats and paying to the Govt without any added fee for it, the payment amount is not taxable.
However, it clarifies that Electricity Bill in the name of the RWA is under the purview of Service Tax. <No Change from Story-as-of-now> 

#6 RWA can avail the cenvat credit. <No Change from Story-as-of-now>

 WHERE IS THE PROBLEM

#2 is the problem. According to it, 

If a Member has a contribution of Rs.6000/month towards the Society, the Service Tax is applicable on Rs.6000.

WHAT WILL YOU DO

Go per your Auditor’s advice.

From our discussion with Auditors in Indian metros, there are two Opinions.

OPINION 1

The latest Circular presents itself as a Clarification to the Original Notification. It does not say it supersedes the Original Notification. So the original Notification stays.

The latest Circular contradicts the original Notification, that clearly mentions exemption of Rs.5000/month for a member.

Auditors of this Opinion intend to advise their Client RWAs to continue status quo (i.e., apply Service Tax on Rs.1000 in the given example)

OPINION 2

Follow the latest Circular and start applying Service Tax on Full amount (i.e., on Rs.6000 in the given example), from January 2014.

Parallely, seek clarification from Revenue Departement whether this effect will be retrospective, in which case Service Tax Liability has to be re-calculated wef 2012, conveyed to all Members, and Collected.

PLEASE SHARE IF YOU HAVE RECEIVED ANY OTHER OPINION.

WHAT WILL YOUR ADDA DO

In Income Tracker there is settings for both the options. 

According to the advice of your Auditor, please raise a Software Help Ticket using the Magic Lamp on your Dashboard, our Accounting Support team will guide you with the setting.

For a lighter moment, this reminds us of Aamir Khan again!

-Team ADDA.

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About the Author: San Banerjee

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