A co-operative housing society is a membership-based legal entity made of one or more residential buildings. Such entity conducts activities such as maintenance for the common good for all its members. These activities are conducted by way of shared expense. This means every member is required to contribute to the society forming its income.
Co-operative Housing Societies are entities registered under the co-operative laws of the respective States.
The question on hand is whether the society is required to pay goods and services tax (GST) on such contributions/income received from its members.
Under the previous law of service tax, services provided by one person to another were taxable. This meant that the services performed by the society were for the purpose of its own members and hence essentially these services are not provided to another person. Accordingly, no service tax was payable on the contributions received by a housing society from its own members.
In the case of State of West Bengal v. Calcutta Club Limited (2017) 5 SCC 356 the high court had held that where the principle of mutuality applies which means where goods or services are provided by a club to its own members no levy of tax can be made. Similar views were held by various courts and appellate bodies based on the principle of mutuality.
With regard to housing societies also the concept of mutuality can be analysed as follows:
The purpose of incorporation of such housing societies is to provide or facilitate the service to its own members. Housing societies does not provide service to any person other than its members. Therefore, it is a member’s club.”
Based on this view and relying on various judgements by the Courts service tax was not leviable on the housing societies.
The GST law in force at this point of time prescribes that any activity that comes under the scope of supply shall be taxable unless specially exempted by way of a notification issued by the government on this behalf.
As per Section 9 of CGST Act, 2017, levy of GST is on supply of goods and services.
Section 7 subsection 1 of the Central Goods and Services Act, 2017 states that the expression “supply” includes:
(a) All forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
This may be analysed as follows:
(i) Consideration means anything in return. The housing society provide its members with common services towards which the members make contributions. Hence it can be said that the contribution received from the members is consideration for the services provided by the society.
(ii) The definition of “person” in Section 2(84) (i) of the CGST Act, 2017 specifically includes a co-operative society registered under any law relating to co-operative societies. Thus a registered co-operative society is a person within the meaning of the term in the CGST Act.
(iii) The next question which arises is whether the activity of the society can be said to be in the course or furtherance of business. The definition of business as per section 2(17) of the CGST Act, 2017 is as under
(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;
Thus, as per section 2(17)(e) of the CGST Act, 2017provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members is deemed to be a business.
The activities of the housing society would thus attract the levy of GST and the housing society would be required to register and comply with the GST Law.
Compliance Requirement and applicable GST:
A housing society shall have to compulsorily obtain registration under section 22 of the CGST Act, 2017 if its turnover (income/receipts) exceeds Rs 20 lakhs in a year.
However, taking registration does not mean that the housing society has to compulsorily charge GST in the monthly maintenance bills raised on its members.
As per Notification No 12/2017-Central Tax (Rate) dated 28.06.2017 and amendment Notification No 2/2018-Central Tax (Rate) dated 25.01.2018 the following amounts are exempt from GST:
a) Statutory dues such as property tax and any amount exempt from GST if collected from the members
b) Where the amount collected from members for sourcing of goods or services from a third person for the common use of its members does not exceed Rs 7,500 per month
This means that the above exemption of Rs 7,500/- is be applied member wise. For example, if a housing society comprises of 30 apartment units and out of these 30 units the maintenance charges bill per month is Rs 9,000/- for 10 units and Rs 6,000/- for the remaining 20 units. Then the society shall have to charge GST only on the bills charged for the 10 units where the monthly charges exceed Rs 7,500/-.
However, the levy of GST can be challenged in the court of law based on principles of natural justice as providing of services by housing society is essentially to itself only.
Author: CA Anoojna Kamath
About Me: I am Practicing Chartered Accountant in areas of GST and Income Tax.
Based in Thane Maharashtra.