GST on Flat Maintenance Charges: What You Need to Know

In the current period, taxes are a significant factor in the economy, and many nations, like India, have adopted the Goods and Services Tax (GST) as a comprehensive indirect tax system. With the introduction of the Goods and Services Tax (GST), many indirect taxes have been replaced with a single tax, which simplifies the tax system. Concerns over the applicability of GST on flat maintenance charges have been raised on many occasions.

The payment of GST that residents of flat buildings and housing units are required to make to society is frequently unknown to them. Apartment maintenance fees are only one of the many expenses associated with purchasing a home. The owners or tenants of apartments pay these maintenance fees on a monthly or yearly basis to keep their buildings operating and maintained.

Read further to learn more about the implication of GST on flat maintenance charges.

Understanding GST on Flat Maintenance Charges

The payments that housing societies or Resident Welfare Associations (RWAs) receive from their inhabitants to pay for the upkeep and management of common spaces and facilities are referred to as flat maintenance charges. These fees usually cover cleaning, security, and upkeep of common areas like playgrounds, lifts, and swimming pools, as well as other necessary services that keep the apartment complex running smoothly. 

Circular No.109/28/2019-GST on “Issues related to GST on monthly subscription/contribution charged by a Residential Welfare Association (RWA) from its members” was released by the government on July 22, 2019, to provide clarification on GST rules for apartment maintenance charges. In a housing society or residential complex, the RWA offers a variety of products and services for the mutual benefit of its members, and it also collects GST on maintenance fees.

On July 22, 2019, the Finance Ministry announced that flat owners who contribute more than Rs 7,500 per month to the Residents’ Welfare Association (RWA) would be required to pay GST at the rate of 18%.

According to the Circular, RWAs must collect GST from its members’ monthly membership or contribution if the payment exceeds Rs 7,500 per flat each month and the RWA’s annual revenue from the sale of goods and services surpasses Rs 20 lakhs. 

What Expenses Should Be Included or Not Included in the Threshold of Total Expenses of Rs. 7500

Expenses to be Included

• Property Tax on Common Area: This must be taken into account while calculating the Rs. 7,500 limit.
• Sinking Fund: Since this is a sort of service offered to members, it is taxable and must be taken into account when calculating the Rs. 7,500 cap.
• Maintenance Charges: It covers costs for administrative work, security, auditing accounts, etc. It is thus taxable and will be deducted from the Rs. 7,500 limit.
• Common Water Charges: If the fees relate to the use of water regularly, they are taxable and included in the Rs. 7,500 limit.
• Standard services: such as the clubhouse and swimming pool are subject to taxes and have a maximum limit of Rs. 7,500.
• Use of Common Space for Members or Outsiders: GST on Housing Society must be collected since they are taxable charges, and as a result, it must be factored into the Rs. 7,500 cap.

Charges Not to be Included

• Property Tax on Private Space, Parking Area, Etc.: Since the society is functioning as an agent, it is not subject to taxation and is not subject to the Rs. 7,500 cap.
• Non-Occupancy Charges: Generally applied to leased property, these fees are not for common use and are subject to GST taxation; they are not to be included.
• Parking Fees: Members often pay these for the use of parking spaces. It is charged with tax and does not count towards the Rs. 7,500 cap. It is only used on a one-to-one basis and is not intended for shared usage.
• Share Transfer Fees: These are typically assessed for share transfers, mainly when real estate is being sold. It is taxed, but since no third party is involved, it is not included in the Rs. 7,500 limit.
• Individual Water Costs: Collection of water costs by the Housing Society on behalf of a single member is exempt from taxation and does not go against the Rs. 7,500.
• Interest on Default: Since interest on default is a charge for each instance, it is taxable and not subject to the Rs. 7,500 cap.
• Rental income from mobile towers, etc.: Since these are specialized services that are primarily provided to businesses, they are subject to taxation. If a society is not covered by GST, they are also subject to rent control measures (RCM) as of April 1, 2018.

Determining GST liability

According to the GST Rules for apartment maintenance charges, if the total turnover for the Financial Year exceeds 20 lakhs, the GST on Housing Society would be applied at the rate of 18%.

The ITC of GST paid on capital goods (such as generators, water pumps, lawn furniture, etc.), goods (such as taps, pipes, other sanitary/hardware fillings, etc.), and input services (such as repair and maintenance services) by the residential building are available to Resident Welfare Associations (RWAs). The Understanding GST on society maintenance charges is notified to flat owners by each residential building society.

There is no GST applied to the difference amount. For instance, if Rs 10,000 is a monthly flat maintenance fee for a residential society, in this case, GST will be applied to the entire amount and not only the first Rs. 2500. The amount of GST that must be paid is Rs 1800 (18% of the total).

Two apartments in a building have maintenance fees of Rs. 7,500 each. Both the flats would be exempt from GST, valued at Rs 15,000.

Legal and Regulatory Framework

According to the most recent Advance ruling on GST on housing societies, members’ payments to the Resident Welfare Association for maintenance are excluded from GST on society maintenance costs as long as the total amount charged does not exceed INR 7,500 per month for each member (the previous maximum was INR 5,000).

On the other hand, GST is payable on the whole amount of maintenance fees for commercial properties if these costs exceed INR 7,500. For flat owners spending more than Rs 7,500, the GST on society upkeep is 18%.

Therefore, two requirements must be satisfied to pay GST on housing society maintenance charges:

Note: Even if the amount of GST on maintenance costs of the commercial building exceeds INR 7,500 per month per member, an RWA will not be obliged to seek GST registration or pay GST if the total turnover of the RWA does not reach INR 20 lakhs in a financial year. 

How to Compute and Pay GST on Flat Maintenance Fees

For the purpose of calculating and remitting GST on flat maintenance charges, Resident Welfare Associations (RWAs) are obligated to comply with specific standards and procedures. Important information about the computation and payment of GST on flat maintenance rates is provided below:

Method of Calculating GST:

The GST on flat maintenance expenses is computed by using the applicable GST rate and determining the taxable amount. The taxable value will be calculated on the basis of the list of the costs mentioned in this article. The proper GST rate for these services is typically 18%.

Separating Exempt and Taxable Components:

RWAs must decide which aspects of apartment maintenance costs are exempt from GST and which are taxable.

For instance, if a member’s monthly dues do not exceed Rs. 7,500, there is no need to bifurcate expenses on the basis of taxability. But vice versa, the elements need to be divided in order to ensure an accurate GST computation.

Reporting and Filing of GST Returns:

The RWA must report and file GST returns within the specified time periods when the GST computation is finished. This means providing details on the taxable value, the amount of GST that was collected, and other relevant information.

Also Read: How To Calculate GST On Property Purchase?

What conditions must be met to make an ITC claim for housing society?

Following conditions must be followed to make an Input Tax Credit claim for Residential Society:

• The tax invoice should be owned by society.
• Before claiming an Input Tax Credit (ITC), the purchased goods or services must be received in full. If they are being received in installments, the last installment must be received. 
• The society ought to have submitted the tax returns.
• If the depreciation has already been claimed on the tax component of capital goods or services, the ITC is not permitted. 
• The provider of the products or services has paid the tax being charged to the government.

Also Read: How long do you have to claim ITC?

GST Exemptions and Concessions

If the housing society has a turnover of up to ₹20 lakh and/or collects less than ₹20 lakhs in total maintenance charges in a fiscal year, it is not required to register under the GST legislation. As a result, GST does not apply to housing societies.

The threshold amount for registration liability is ₹10 lakh in Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, and Uttarakhand, among other exceptions.

The following three situations apply to residential societies that are exempt from GST.

1. Monthly maintenance costs for each member might reach ₹7500, with an annual turnover of up to ₹20 lakhs.
2. There is a ₹20 lakh shortfall in annual turnover, and each member pays more than ₹7500 in maintenance fees each month.
3. The monthly maintenance charge for each member is up to ₹7500, and the annual turnover exceeds ₹20 Lakh.

Under GST, there are a few other exclusions and abatements available for flat maintenance fees. The following are some essential details about abatements and exemptions:

1. Small Living Complexes Exemptions: Umbrella bodies of RWAs in small residential complexes are exempt to assuage the tax levies. The total amount of subscriptions collected from members and not exceeding Rs 7,500 per month for each member does not attract GST.

2. Abatement Provisions: These are conditions which enable some services to have their taxable value reduced. For example, an RWA can reduce property value and provide a clubhouse or gym as well as other common areas and facilities among others.

Applicability of Reverse Charge Mechanism on Flat Maintenance Charges

Reverse Charge Mechanism is applicable to Housing Societies. They have to pay GST on reverse charge basis whenever they avail services from Goods Transport Agency (GTA), advocates or unregistered persons. The Housing Society can claim ITC on taxes paid by it.

Are Housing Societies Subject to Any Statutory Compliances Under the GST?

Returns:

Every year when the Residential Societies fall under GST compliance, three monthly returns (GSTR-1, GSTR-2, and GSTR-3) and one annual return (GSTR-9) must be filed on or before December 31st of the following year.

On the other hand, a Housing Society has to pay GSTR 7 by the subsequent month’s tenth date if they have made TDS deduction.

Invoices:

Following registration under GST law a housing society needs to restructure its monthly bills, quarterly invoices as well as yearly invoices to members. Moreover its required to include the GSTIN number along with tax amount collected including any other information specified by this Act.

Books of Accounts:

A Housing Society shall keep proper books of accounts and an audit may be necessary if its total turnover exceeds the audit threshold.

Implications of GST on Housing Societies and Residents

The introduction of GST on flat maintenance charges GST implications has affected flat owners and RWAs both directly and indirectly. Some noteworthy information on the impact of GST are as follows:

Financial Implications for Flat Owners:

Since the implementation of the GST on maintenance costs, owners of flats have seen an increase in expenses. The application of GST at the applicable rate raises their overall maintenance expenses. However, exclusions and abatements mitigate the consequences, particularly for smaller residential complexes.

Constraints for RWAs:

The implementation of GST and ensuring compliance with its rules pose challenges for RWAs. They have to keep correct records, file their returns on time, and understand the nuances of GST.

Wrapping It Up

Properties that are still under construction may also fall under the purview of GST Act. It is the builder’s responsibility to collect and submit GST on time. Buyers might inquire as to whether the builder has a GST number and whether he is depositing the money that is deducted from them.

Assume that the apartment association wants maintenance fees and is registered with the GST. To achieve clarity and compliance, it is essential to comprehend the particular components of GST on flat maintenance rates. Interest on late payments is free from GST, however, parking fees, late payment fines, and GST on commercial society maintenance expenses are all subject to GST.

Input Tax Credits are available to RWAs for products and services used in standard area upkeep. RWAs might receive a reduction in residents’ maintenance costs by registering voluntarily for the GST and benefiting from the ITC.

Also Read: Understanding GST Implications On Resident Welfare Associations (RWA)

Also Listen: GSTR 7 Applicability and Registration Requirements

FAQs

• Is GST applied to the maintenance fees for stores or commercial apartments in residential complexes?

GST is applied to the upkeep costs of a housing society’s shops. Residential and commercial properties are handled differently, and maintenance fees for the former are taxable supplies that must be paid with the relevant GST rate.

• Is there a Goods and Services Tax (GST) associated with late fines for flat maintenance fees?

No, GST is not applied to late payment fines that apartment owners incur for failing to pay maintenance fees on time. Penalties for late payments are not a distinct taxable supply; rather, they are regarded as compensation for the delay in payment and are not subject to GST.

• How does GST apply to a person who owns two apartments in the same society and pays monthly maintenance fees of Rs 5000 for one apartment and Rs 8000 for the other?

In this instance, GST is solely applicable to the second flat, whose maintenance costs are Rs 8,000.

• If a person owns two or more apartments in a housing society, how does the GST exemption operate?

In this scenario, he will need to apply the GST exemption of Rs. 7,500 per month, per unit, separately for each of his apartments.

For instance, if an individual owns two residential units in a society and pays a maintenance charge of Rs. 15000 per month (equivalent to Rs. 7500 per apartment), then each property will be eligible for the GST exemption.

• What happens in a housing society if someone owns more than one apartment?

It is unclear if the Rs. 7,500 monthly cap per member applies to every flat or to every individual.

It should be mentioned that each flat owner, not every tenant, is subject to the Rs. 7,500 monthly restriction per member. Because every flat is seen as a separate entity with its own membership in the Resident Welfare Association (RWA), this rule is respected.

Therefore, if an individual owns many apartments within the same community, the Rs. 7,500 exemption limit will apply to each apartment he owns.

• When a member’s maintenance costs surpass INR 7,500 per month, how should the RWA compute the applicable GST? Does the GST apply to the whole amount of maintenance expenses or just the portion that exceeds INR 7,500?

When maintenance fees in flats collected by an RWA from its members are less than INR 7,500 per month, RWA’s tenants are excluded from GST on such fees. But when the monthly fees surpass INR 7,500 for each member, the whole sum becomes taxable.

For instance, GST @18% will be charged on the entire sum of INR 8,500, not on INR 1,000 (INR 8,500 – INR 7,500), if each member’s maintenance fees are INR 8,500 each month.

• Are share transfer costs and interest charged for late payments covered by the Rs. 7,500 cap?

No, as there is no involvement from a third party, share transfer fees are taxed but do not count against the Rs 7500 cap. Similar to interest on default, which is taxed but not subject to the Rs. 7500 cap as it is an individual charge.

• How do you go about claiming ITC, and how much can you claim?

In their monthly, quarterly, and annual GST forms (Form GSTR-1,2,3), taxpayers must record the ITC amount together with any relevant data, such as sums eligible and ineligible for ITC and reversal.

Rather than 10% of the total ITC available in GSTR-2B for the month, the receivers may now claim a provisional input tax credit in GSTR-3B to the extent of 5%.

• Which components of the flat maintenance charges are GST-exempt?

Taxes and utility payments paid by the housing society on behalf of residents are among the maintenance costs that are excluded from GST (e.g., municipal taxes, property taxes, water bills, non-agricultural land taxes, shared facility energy bills).

While payments to the repair fund are subject to GST, donations to the sinking fund are likewise tax-exempt.

• How can property owners guarantee that the GST on maintenance costs is transparent?

Property owners should ask the housing society for a thorough breakdown of maintenance fees, including the GST component, in order to maintain transparency. It’s also a good idea to keep lines of communication open with the RWA for any inquiries about GST.

• Can property owners claim a refund of GST paid on Flat maintenance Charges?

Since GST is a consumption-based tax that is paid by the final consumer, property owners are not eligible to claim an Input Tax Credit of GST on maintenance costs. Housing societies may, however, deduct their GST payment by claiming input tax credits.