Authored by: CA Rajesh Dalal
GST is an indirect tax for the whole nation – make India a unified common market (FAQ on GST, Press Information Bureau dated 03-08-2016 and 21-09-2016). However, as India has a federal structure (i.e. Union and States have different rights of taxation and management) GST also has a dual structure and there will be dual levy as well as dual control. Due to this GST has been further classified as follow:-
IGST-Applicable on Interstate Transaction
SGST/ CGST / UGST i.e. (State / Central / Union) is applicable on Intra-State Transaction i.e. 29 State will have 29 ACT as well as IGST thus there will be 30 ACT to be taken care off.
This act replaced (subsumed) the following Laws and the impact of this is that now, instead of the following taxes only GST will be there.
- Central Excise Duty (except on specified petroleum items & tobacco and its products)
- Additional Excise Duties
- Additional Customs Duty (CVD)
- Special Additional Duty of Custom (SAD)
- Central Sales Tax (CST)
- Service Tax
- VAT / Sales Tax [except on sale of specified petroleum items & alcoholic liquor]
- Purchase tax
- Tax on Entertainment / Amusement (other than levied by local body)
- Luxury tax
- Taxes on lottery, betting, and gambling
- Entry Tax /Octroi
The basic concept i.e. a taxable event, which will now be unified so that tax is levied on consumption, thus the state where the consumption takes place will have right for taxing the transaction in nearly all cases. Previously under the various laws, it was as follows: –
By and large the advantage of GST is that the TAX CREDIT of GST paid in the previous stage can now be claimed as a credit in subsequent stages, however, there is a restriction in a larger sense as follow:-
and Subsequent through rules certain stringent limitations are also are in place. Understanding the finer aspects which may crop up at a later stage is essential.
It may be noted that the following TAXES are not subsumed i.e. these taxes will be levied as its done today and NO CREDIT WILL BE available against GST for these taxes paid: –
- Basic Custom Duties
- Excise on liquor
- Property tax
- Tax on sale / consumption of electricity
- Stamp Duties
As on date only CGST Act and a few rules have been prescribed and all the state have been requested to draft the law of the state in tune with CGST, thus it’s assumed that in Maharashtra, major parts of the law will be in tune with CGST. Any reference made henceforth is a reference to CGST unless specified otherwise.
On the other hand, the housing societies which are formed under Maharashtra State Co-operative Society Act 1960. The bye-laws formed and adopted by the various housing societies in Maharashtra, specify the various heads under which the reimbursement/subscription/consideration/charges have to be collected as well state how the apportionment of the expenses to be made or charges to be collected. This is specified under bye-law number 64 read with 65 to 68, by and large, the following collection head should appear on each bill raised by the Society, namely:-
- Property Taxes,
- Water Charges,
- Common Electricity Charges,
- Contribution to Repairs and Maintenance Fund,
- Expenses on repairs and maintenance of the lifts of the Society, including charges for running the lift.
- Contribution to the Sinking Fund,
- Service Charges,
- Car Parking Charges,
- Interest on the defaulted charges,
- Repayment of the installment of the loan and interest, (if any)
- Non-occupancy Charges,
- Insurance Charges,
- Lease rent,
- Non-agricultural tax.
- Education and Training Fund
- Election Fund
- Any Other Charges.
As on date most of the societies in Maharashtra were having liabilities under the following laws: –
- State Sales tax (more on TDS matter with related to work-contract allocated)
- Service Tax
- Luxury tax (High-end Societies providing guest house facilities)
- Entertainment Tax (For entertainment program arranges with professional assistance)
Now with the advent of GST lets us see how it will have a major effect on the society, which as on date has not yet prepared itself as the corporate house(s) as already started.
Let us consider the various aspect Frequently Asked Question:-
1. Whether the Maharashtra Housing Society will be covered under GST?
The immediate answer is YES, due to the reason specified in Annexure “A”
2. Whether any exemption is available on basis of turnover?
- If the Society’s aggregate receipt of turnover is less than ₹ 20,00,000 it will not be liable for Registration and tax collection.
- If the Society’s aggregate receipt of turnover is more than ₹ 20,00,000 but less than ₹ 50,00,000 and does not desired to claim any tax credit on its expenses paid GST it can go for Composition Scheme under Section 10. * Unfortunately as on date this is not available to society as it does not satisfy eligibility criteria u/s 10(2).
- If the Society’s aggregate receipt of turnover is more than ₹ 20,00,000 it will be fully covered like any other business entity.
3. Will the Billing format of the Society have to be changed?
Yes, as provided in Annexure “B” the format will have to be changed and it will be changed as format specified therein.
4. Will the method of accounting have to be changed?
Yes, now as the tax paid on the expense side is available under specific scenario, the party-wise details have to be uploaded and the work being done with various type of online/offline programs will undergo a major change to provide for recording detailed expenses in lieu of recording transactions as being done presently, whereby few societies are paying/collecting and paying taxes inefficiently increasing the cascading effects.
5. Will the Input Tax Credit be available for all the expenses incurred by the Society?
On following expenses where the taxes are paid No Input Tax Credit will be available, i.e.
- Electricity Expenses
- Stamp Duty
- Property Tax
However, subject to conditions specified in Annexure “C” the credit can be claimed on the expenses in most of the cases.
6. Will the reverse charge mechanism applicable to the Society?
On certain transaction, it’s expected that reverse charge mechanism will be applicable and accordingly the GST will have to be paid first and then the Credit may be claimed. Details provided in Annexure “D”.
7. As on date under Service tax, the Society is required to filed two half-yearly returns and under the luxury tax, it’s required to filed monthly return-cum-challan and TDS returns under work contract in the year when TDS is deducted, now how many returns will have to be filed under GST?
Under GST, all dealers including a Society will have to file 3 returns in a month for each and every transaction on the billing side by 10th of following month and on expenses side on 15th of following month and consolidated return on 20th of following month and an Annual Return has to be filled. Thus in all 37 returns will have to be filled.
Other than these, if they deduct TDS then they will have to also file GSTR-7 by 10th of the following month.
However, certain societies may fall under quarterly return if they have opted for Composition Scheme by forfeiting all the Credit on expenses and willing to pay tax on receipts. Composition Scheme is not dealt with over here as it requires a separate approach.
8. Will a Separate Audit be required under GST?
Yes, if the turnover exceeds prescribed limit. Thus, in effect there may be minimum 3 audits as follow: –
- Statutory Audit
- GST Audit
- Income Tax Audit
- Departmental audit (in certain situation)
9. On what amount GST must be paid?
GST is payable on consideration, which has been defined under section 2(31) of the CGST and state law has been requested to follow and align their laws in line with CGST. Thus, it is assumed at this moment that it will be the same. Consideration includes not only amount receivable for an activity but also a monetary consideration for agreeing to refrain from an activity.
However, it’s provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply. That means on deposit there will be no GST unless supply and/or service is made against that deposit.
10. If Society collect from its members an amount as reimbursement of certain expenditure to provide certain services to the third parties to its members will this amount liable to GST?
In valuation rules, to determine the value of particular services, the Rule 7 provides that if a person, a supplier (in this case Society) act as “Pure Agent” in that case on such reimbursement there will be no GST as the amount received is for disbursement and it cannot be considered as part of the Value of service. However, all the following condition has to be cumulatively satisfied.
- the supplier acts as a pure agent of the recipient of the supply when he makes payment to the third party for the services procured as the contract for the supply made by the third party is between the third party and the recipient of supply;
- the recipient of supply uses the services so procured by the supplier service provider in his capacity as pure agent of the recipient of supply;
- the recipient of the supply is liable to make payment to the third party;
- the recipient of supply authorizes the supplier to make payment on his behalf;
- the recipient of supply knows that the services for which payment has been made by the supplier shall be provided by the third party;
- the payment made by the supplier on behalf of the recipient of supply has been separately indicated in the invoice issued by the supplier to the recipient of service;
- the supplier recovery from the recipient of supply only such amount as has been paid by him to the third party; and
- the services procured by the supplier from the third party as a pure agent of the recipient of supply are in addition to the supply he provides on his own account.
Explanation. – For the purposes of this rule, “pure agent” means a person who – (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; (b) neither intends to hold nor holds any title to the goods or services or both so procured or provided as pure agent of the recipient of supply; (c) does not use for his own interest such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services.
11. What preparation should be started on a priority basis?
- Get the details of GSTRN of all the vendors and the detailed HSN or the Service code which they have obtained under GSTRN. This should be in alignment of our services.
- If your Residential Owner / Industrial Gala owners are going to claim the GST paid on society bill as Credit, then also obtain their Registration details from them, to incorporate in our bills.
- Take management policy decision in case they have to deal with the unregistered dealer ( they would have to pay GST first and then claim the credit of the same), so what are the exceptional situation in which the executing team may purchase goods/services from unregistered dealers.
The government has introduced for the first time a unique Section 171 related to Anti-profiteering measure, which state as follow: –
- Any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.
- The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him.
- The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.
In effect, it says that every person should prepare a Cost-Sheet and work out the pricing in such a manner that the optimum utilization is done of Input Tax Credit whereby the pricing of service/goods are in favor of the recipient.
This measure is basically to check that cascading effect of the tax is avoided, as the goal of government is to take care that there is no cascading effect and each entity must work toward that goal.
Why Maharashtra Housing Society is covered under GST
GST is applicable to the dealer person who is rendering the service or supplying the goods in its regular course of business activity.
A person has been defined under 2(84) as follow:-
- an individual;
- a Hindu Undivided Family;
- a company;
- a firm;
- a Limited Liability Partnership;
- an association of persons or a body of individuals, whether incorporated or not, in India or outside India;
- any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013;
- any body corporate incorporated by or under the laws of a country outside India;
- a co-operative society registered under any law relating to co-operative societies;
- a local authority;
- Central Government or a State Government;
- society as defined under the Societies Registration Act, 1860;
- trust; and
- every artificial juridical person, not falling within any of the above.
From this, it can be noted that under clause (i) a co-operative housing society will be covered.
Can a housing society be considered as rendering services to its members?
Section 7 defines Supply and it is defined in an inclusive manner as follows: –
There is a probability that housing societies may be considered under Schedule II -5(a) renting of immovable property (if it is argued that the immovable property belongs to the Society and members have only right to stay) or certain transaction could also come under Schedule II-5(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; or Schedule II- (f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.
However, the consideration might be considered as “Cost-Sharing” in accordance with Societies bye-laws in accordance with Model Bye-law 66 and one can take risk of arguing that on “Mutuality” principle the service cannot be considered so.
Can the activities of housing Societies be considered as “Business Activity”?
The term business has been defined under Section 2(17) as follow:- “business” includes–– (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a); (c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business; (e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members; (f) admission, for a consideration, of persons to any premises; (g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; (h) services provided by a race club by way of totalisator or a licence to bookmaker in such club ; and (i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;
The above clause (e) specifically covered a Society, thus the housing society will be considered as carrying out activities in furtherance of business and will be liable for Registration under GST.
The mode of Preparing the Invoice
The CGST rules have come out on 2nd April 2017 with the revised rule on Invoice preparation. In accordance with this rule, the invoice will have to be prepared in the following major categories: There is a possibility that a number of societies may have to raise two invoices per unit on the basis of above, specifically if it’s providing the exempted service or service on which there is no GST. This will also be required to upload in the return to be filled.
Bill of Supply will contain all other details but will not have details of CGST/SGST/IGST/UGST.
OTHER RELEVANT ASPECTS—–
- If the recipient is not a registered person and does not require such a tax invoice, he may be issued consolidated tax invoice.
- Time limit for issuing tax invoice —– In case of taxable supply of services, it shall be issued within a period of thirty days from the date of supply of service ( Provided that where the supplier of services is an insurer or a banking company or a financial institution, including a non-banking financial company, the period within which the invoice or any document in lieu thereof is to be issued shall be forty-five days from the date of supply of service)
- The manner of issuing invoice ——
(1) The invoice shall be prepared in triplicate, in the case of supply of goods, in the following manner: –
(a) the original copy being marked as ORIGINAL FOR RECIPIENT;
(b) the duplicate copy being marked as DUPLICATE FOR TRANSPORTER, and
(c) the triplicate copy being marked as TRIPLICATE FOR SUPPLIER.
(2) The invoice shall be prepared in duplicate, in case of supply of services, in the following manner:-
(a) the original copy being marked as ORIGINAL FOR RECIPIENT; and
(b) the duplicate copy being marked as DUPLICATE FOR SUPPLIER.
(3) The serial number of invoices issued during a tax period shall be furnished electronically through the Common Portal in FORM GSTR-1.
CARE TO BE TAKEN FOR CLAIMING INPUT TAX CREDIT
No Credit will be available, for following tax paid: –
- Motor Vehicles and Other Conveyance
- Goods Lost, Stolen, Destroyed, written off or disposed of by way of gift or free samples
- Goods used for Personal use or personal use by employee
- Foods / Beverages / Outdoor Catering; Beauty treatment; Health services, cosmetic and plastic surgery except for use for output services.
- Health & Life Insurance except where it is mandatorily required to be provided to the employer.
- Goods and Services received for Construction of immovable property (other than plant and machinery). (Construction includes re-construction; renovations; addition or alteration to the extend it’s capitalised)
- If part of the Service/goods is used for exemption goods/services, in that case, the credit will be given proportionately.
The “reverse charges” has been define u/s 2(98) as “reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act.
Thus, under the following cases, the Recipient must pay the required GST
- Any transaction notified by the Government, as on date nothing has been notified but likely it may be for a) Transport payment b) Lawyer Professional Fees c) Security Payment d) Payment where people are providing labour, etc.
- Obtaining goods/services from UNREGISTERED DEALER.
The recipient will have to prepare an Invoice in such circumstances and pay the tax to government and prepare Payment Voucher
ALL persons liable to pay tax under Reverse Charges will have to be registered themselves under the act irrespective of their liabilities on basis of Turnover. In all probabilities, most of even small societies may be coming for registration under this provision of section 24(iii) and (iv)
Subsequent to above circulation (on 18th May 2017), the government has announced two major announcements, which will affect the housing societies, in a multi-dimensional way. They are
- List of the GST to be paid on “Reverse charged basis”
- List of Services exempted from “GST”
- The rate of GST on various goods/services.
As far as societies are a concern the “Reverse charge” will be on the following payments made / amount received by them: –
- Goods Transport Agencies—Payment made
- Sponsorship—-Amount received –(On this the recipient will have to pay GST)
- Advocate fees—-Payment made.
- Service from Government—Payment made.
The following amount are exempted (i.e. NO GST) when received for Service rendered by the Society, viz,
- 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 GST; 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. (Serial No- 26)
- conduct of any religious ceremony (Serial No-73)
- Services by way of renting of residential dwelling for use as residence (Serial No 7)
- Renting of rooms where the charges are less than ₹1000 per day (Serial No 73)
- Renting of premises, community halls, Kalyan mandapam or open area, etc. where charges are Rs 10,000/- or less per day. (Serial No-73)
- Renting of shops or other spaces for business or commerce where charges are Rs 10,000/-or less per month. (Serial No-73)
- Service by way of extending deposits (Serial No-8)
The following are the rate of GST applicable in case of Residential Society
- Accommodation in guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, where room rent is Rs 5000/- and above per night per room-– 28 %
- Renting of guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes where room tariff of Rs 2500/ and above but less than Rs 5000/- per room per day — 18 %
- Renting of guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having room Tariff Rs.1000 and above but less than Rs.2500 per room per day -12 %
- All other services not specified elsewhere –18 %
While claiming input tax credit Section 17 state as follow: –
(1) Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.
(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
The implication of the above provision is that all the reverse charge taxes paid will be considered as exempted services and besides the reverse charges if there are any other exemptions claimed (for e.g. Rs 5000 per month per member) in that case the Input tax credit will be reduced proportionately.
In view of the above provisions, each society will have to do a threadbare work and refine the maintenance charges.