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.
Table of Contents
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
Only Societies that collect more than Rs.3000/month for any flat.
“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 ADDA’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
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).
“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
“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?
Yes, as interpreted by majority Auditors.
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?”
Service Tax was not levied in most cases.
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 ADDA), please join the conversation here: ADDA Admin Users