GST on Resident Welfare Associations

Frah Saeed, Advocate

Co-founder Clearmytax.in

1. Introduction

Resident Welfare Associations (RWA) are associations where the membership is restricted to only members of the housing society or residential complex. RWAs provide various services to their members such as providing security arrangements for the premises, upkeep of premises, maintenance of common passage, maintenance or upkeep of parking facilities, maintenance or upkeep of lifts etc, and for such services receives reimbursement of charges or share of contribution from the members.

In this article we will discuss about applicability of GST on the RWA services as well as whether input tax credit can be availed by RWAs.

2. Taxability of RWA services under GST regime

GST is a tax on supply of goods or services or both. Thus in order to be taxable the services provided by the RWAs to its members, should be covered under the definition of ‘supply’ as well as ‘service’.

2.1 Whether regarded RWA services are covered under definition of ‘Supply’?

As per Section 7(1)(a) of the CGST Act,2017 all forms of supply of goods or services or both made or agreed to be made for a consideration by a person in the course or furtherance of business is included within the term ‘supply’.

As per the definition of ‘person’ under Section 2(84) of the CGST Act,2017 ‘person’ includes a society, trust as well as a cooperative society. Further as per Section 2(17)(e) of the CGST,2017 Act the term ‘business’ includes the provision by a club, association, society or such body (for a subscription or for any other consideration) of the facilities or benefits to its members. Also the RWA charges from its members for the services provided by it and thus consideration is also present in the transaction. Accordingly transaction between RWA and its members would be treated as supply under Section 7(1)(a) of the CGST Act,2017.

2.2 Whether RWA services falls within definition of service?

As per Section 2(102) of the CGST Act,2017  “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charge

The term ‘service’ as defined above is very broad and covers all services including those provided by RWA.      

2.3 Whether RWA services falls within definition of service?

 We have discussed above that RWA services are covered under definition of supply as well as service and thus they are taxable unless they have been specifically exempted under GST Law.

As per Entry No. 77(c) of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 (as amended) 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 up to an amount of Rs 7500 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 is exempt.

2.3-1 Conditions for exemption

For ease of understanding the above exemption we can break the conditions for exemptions into four parts each of which is explained below:-

 2.3-1a Exemption only to service supplied to RWAs own member

Exemption is available only in respect of service supplied by RWA to its own members. Accordingly, if any contribution or any amount is received from a non-member, this exemption is not operative. For illustration suppose a RWA receives any amount towards advertisement in the housing complex, exemption would not be available and same would be taxable subject to the threshold exemption limit.

2.3-1b Exemption only for a housing society /residential complex

The exemption is available only for a RWA services provided to members in a housing society / residential complex. Thus no exemption is provided to a RWA / association providing common services in a commercial complex like offices , shops etc.

2.3-1c Exemption is upto Rs 7500/- per month per member

Exemption is on reimbursement of charges or share of contribution is upto Rs 7500 per month per member. It may be noted here that prior to 25th January 2018, the exemption was available if the charges or share of contribution did not exceed Rs 5000/- per month per member.

i) GST applicable on entire amount of maintenance charges if it exceeds Rs 7500/-

In case the share of contribution / reimbursement of charges exceeds Rs 7500/- per month per member the entire contribution of such members would be ineligible for the exemption under the said notification. GST would be leviable on the aggregate amount of monthly contribution of such members.

Illustration: If monthly contribution of any member is Rs 8000/- then GST shall be leviable on the complete amount of Rs 8000/- and not only on Rs 500/- i.e. amount exceeding the exempted amount of Rs 7500/-. This view is corroborated by Circular No. 109/28/2019- GST dated 22-07-2019.

ii) Ceiling of Rs 7500/- per month is to be considered for each residential apartment

Circular No. 109/28/2019- GST dated 22-07-2019 states that as per general business sense, a person who owns two or more residential apartments in a housing society or a residential complex shall normally be a member of the RWA for each residential apartment owned by him separately. The ceiling of Rs. 7500/- per month per member is applied separately for each residential apartment owned by him.

For example, if a person owns two residential apartments in a residential complex and pays Rs. 15000/- per month as maintenance charges towards maintenance of each apartment to the RWA (Rs. 7500/- per month in respect of each residential apartment), the exemption from GST shall be available to each apartment.

iii) Exemption in case of variable rates of contribution from members

A question may arise in mind as to whether if there are number of apartments in a complex with varying rates of monthly contribution, whether GST would be applicable to all apartment owners even if contribution by one of them exceed Rs 7500 p.m.

In this regard as stated above that exemption is available for monthly contribution of upto Rs 7500 per month per member which means that such exemption would continue for the members whose contribution does not exceed this threshold even if the contribution of some members exceeds Rs 7500. In such a case GST would only be applicable on entire contribution received from members whose contribution exceeds Rs 7500 per month and no GST shall be charged on members whose contribution is upto Rs 7500/- p.m.

iv) Treatment of collection of major repair charges, whitewashing collected separately from regular contribution

A situation may arise where monthly contribution is less than Rs 7500 p.m but the RWA in a month collects a lumpsum for major repair work e.g. repair of lift or whitewashing of exteriors and such lump sum amount together with monthly contribution exceeds Rs 7500 p.m.

As reimbursement of charges or share of contribution up to an amount of Rs 7500 p.m per member for sourcing of goods or services from a third person for the common use of its members only is exempt and thus the lumpsum amount would also be considered while regulating of exemption and GST would be attracted in the month when the monthly contribution along with lump sum amount charged exceeds Rs 7500 p.m.

2.3-1d Contribution towards sourcing of goods or services from a third person for the common use only is exempt

Reimbursement / share of contribution is for sourcing of goods or services from a third person for the common use of its members. Normally RWA engages a third party e.g. security agency for providing security services, contractors for providing maintenance services etc for common use of its members. Any contribution charged by such RWA for meeting out such expense would be eligible for the exemption.

However in case RWA directly appoints security personnel and no security agency is engaged then such exemption will not be available on the amount of charges recovered by RWA towards such expenses. Such a law has been laid down so that despite providing exemption, Govt. collects GST at one stage i.e. when such parties provides supply to RWA.

Also the reimbursement must be for sourcing of goods or services for the common use of its members meaning thereby that in case any reimbursement is obtained by RWA for sourcing of goods or services specifically for one member and not for common use of all members, then this exemption would not be operative.

For example if the RWA collects a contribution from a resident towards cleaning of club after it is used by such resident for some celebration, such contribution not being for common use would not be an exempt supply.

2.3-1e Exemption available only to RWA

The exemption is applicable only when contribution is received by a RWA from its members, thus exemption is not available in cases such services are provided by an external company / firm / builder directly to residents and not by RWA. In such cases, GST is applicable even on monthly contributions / reimbursements charged by such company / firm / builder which do not exceed Rs 7500 p.m per member, subject to the threshold exemption limit for registration.

3. Applicability of threshold exemption to RWAs

After deciding upon taxability of RWA services under GST Law it is very important to discuss about applicability of threshold exemption in respect of aggregate turnover in respect of obtaining registration and payment of tax to RWAs. It may noted here that even if the services provided by RWA are taxable, no GST need to be charged by RWA if the aggregate turnover of RWA does not exceed the prescribed amount.

3.1 Requirement for registration as well as payment of tax by RWA is determined from threshold limit of aggregate turnover

Section 22(1) of CGST Act, provides that every supplier shall be liable to be registered under this Act in the State or Union territory, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds Rs 20 lakh (Rs 10 lakh for Nagaland, Manipur, Tripura and Mizoram).

Under GST Law the threshold limit not only governs the requirement to take registration but the liability to pay tax also hinges on it, in view of the charging section of CGST Act i.e. Section 9(1) provides that there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

Thus as per the above charging section (also incorporated in the other GST Acts), the tax is required to be paid by the taxable person. As per Section 2(107) of CGST Act “taxable person” means a person who is registered or liable to be registered under section 22 or section 24;

As per Section 22(1) a person is liable to take registration, if its aggregate turnover in a financial year exceeds Rs 20 lakh (Rs 10 lakh for Nagaland, Manipur, Tripura and Mizoram).Accordingly it emerges that any person whose aggregate turnover is below the prescribed limit is not required to take registration, therefore would not be covered under the ambit of definition of a ‘taxable person’ and thus would also not be required to pay tax.

3.2 Meaning of aggregate turnover

As per Section 2(6) of the CGST Act,2017, ‘Aggregate turnover’ means value of all outward supplies (taxable supplies + exempt supplies + exports + inter-state supplies) of a person having the same PAN and computed on all India basis MINUS central tax (CGST), State tax (SGST), Union territory tax (UTGST), integrated tax (IGST) and compensation cess.

The value of inward supplies on which tax is payable under reverse charge is not taken into account for calculation of ‘aggregate turnover’.

3.3 No requirement to take registration and pay tax if RWA is solely engaged in supply of exempt supplies even if turnover exceeds Rs 20 / 10 lakh

As per Section 23(1)(a) of the CGST Act,2017 any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the IGST Act.

Thus a supplier who is engaged exclusively in supply of exempt services is not required to obtain registration. In this regard it is important to note that the term “exclusively” has been used which means that all the supplies made by such person should be exempt and in case some part of the supplies are taxable then the benefit of Sec 23(1) will not be available. As in such cases the registration would be governed by Section 22(1) according to which registration is to be taken in case the aggregate turnover is above the prescribed limit of Rs 20 lakh / Rs 10 lakh.

Let us understand the above position in context of RWA with help of some examples:

Example 1:

Suppose a RWA has 100 members from which it receives monthly contribution of Rs 6000 each. In this case the aggregate (annual) turnover of RWA would be Rs 72 lakhs, which exceeds threshold limit of Rs 20 lakhs, however as this entire turnover is towards exempt supply, in light of Section 23(1)(a) of the CGST Act, 2017, there will be no requirement to obtain registration and pay tax.

Example 2:

Suppose a RWA has 100 members from which it receives monthly contribution of Rs 6000 each. In this case the aggregate (annual) turnover of RWA would be Rs 72 lakhs. Apart from above it receives rental income of Rs 1 lakh from renting of hall to a non-member and Rs 50,000/- towards income from sale of scrap. As in this case the rental income and sale of scrap are not an exempted supply and therefore the benefit of Section 23(1)(a) of the CGST Act,2017 cannot be taken and such RWA is required to obtain registration and pay GST on renting of hall and sale of scrap.

3.4 CBIC Clarification on taxability of RWA Services

CBIC vide Circular No.109/28/2019- GST dated 22-07-2019 has clarified as under:

RWA shall be required to pay GST on monthly subscription/ contribution charged from its members, only if such subscription is more than Rs. 7500/- per month per member and the annual aggregate turnover of RWA by way of supplying of services and goods is also Rs. 20 lakhs or more.

4. Input Tax Credit to RWA.

Under GST Law, input tax credit can be availed only by persons who are registered under GST law. Accordingly RWAs who are not registered, due to their supply being entirely exempt / turnover less than Rs 20 / 10 lakh, cannot avail any input tax credit.

However RWAs who are registered under GST Law are entitled to take ITC of GST paid by them on capital goods (generators, water pumps, lawn furniture etc.), goods (taps, pipes, other sanitary/hardware fillings etc.) and input services such as repair and maintenance services, security services etc. This is also corroborated by Circular No. 109/28/2019- GST dated 22-07-2019.

In this regard it is important to note that where the turnover of RWA comprises of exempt supply (contribution upt Rs 7500 p.m per member) and taxable supply (cases where contribution is more than Rs 7500 p.m per member or services to non members), then full input tax credit cannot be availed and same would be required to be restricted as per provisions of Section 17(2) of the CGST Act,2017 read with Rule 42 and 43 of the CGST Rules,2017.

5. Concluding Remarks

Taxation of RWA services is relevant not only to RWAs to ensure compliance but also its members living in housing societies as they finally bear the brunt of GST. Even though exemption has been provided to RWA services for contribution of upto Rs 7500 per month per member, but benefit of such exemption is evaporated to a major extent as the third parties will levy GST on supplies made to RWA which will form part of cost of RWA as the input tax credit cannot be availed by RWA, if it is taking the benefit of the exemption and not depositing GST.

It is important to note here that RWA may also be engaged in supply of services to non-members or to members (not for common use) and in such cases if the aggregate turnover exceeds Rs 20 lakhs the RWA is required to obtain registration and pay tax.

In case the RWA is registered and is depositing GST on its entire contribution it can avail Input Tax Credit in respect of capital goods like DG Sets, Furniture etc as well as input services like security services, housekeeping services, this will reduce the cost in hands of RWA. In case the supplies of RWA are partially taxable and partially exempt it can avail pro-rata input tax credit.

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Frah Saeed

Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.