Service Tax For Housing Societies – Impact Of Budget 2012

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 Guruprasad Pandit in Bangalore and a Firm led by CA Mohanraj Yenagudde 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.

Summary, For Those In A Hurry:

1. Almost every Society will be eligible for Service Tax Registration (Income above Rs.10Lakh/year)

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

Before 01-July-2012:

Only Societies that collect more than Rs.3000/month for any flat.

From 01-July-2012:

“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 receipts [ 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

Per ApartmentADDA’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.

Which Income Heads Are Taxable

Before 01-July-2012

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).

From 01-July-2012

“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

Before 01-July-2012

Uncertain.

From 01-July-2012

"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?

Before 01-July-2012

Yes, as interpreted by majority Auditors.

After 01-July-2012

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?”

Before 01-July-2012

Service Tax was not levied in most cases.

From 01-July-2012

Service Tax applicable to the Commercial Units, no exemption applicable. The Exemption is applicable for Residential Units only.

courtesy by apartmentadda.com