There has been an outrage over a recent circular issued by the Finance Ministry that flat owners will have to pay GST at 18%, if their monthly contribution to the resident welfare association (RWA) exceeded Rs 7,500.
As soon as the Finance Ministry tax reform rules hit the public domain, a certain section of media has been actively propagating that the introduction of GST into RWAs charges tantamounted to ‘tax terrorism’. However, there has been no introduction of any new tax system pertaining to housing societies.
In fact, the Finance Ministry has tweaked an earlier ‘Service tax’ regime to bring in more transparent and efficient GST into housing societies and RWAs.
Is it really a new form ‘tax terrorism’ on the flat owners?
The Finance Ministry has notified reforms stating that all flat owners should have to pay GST at 18 per cent of their monthly contribution to resident welfare association (RWA) if it exceeds Rs.7,500. As per the rules, RWAs are required to collect GST on monthly subscription/contribution charged from its members if such payment is more than Rs 7,500 per flat per month and the annual turnover of RWA by way of supply of services and goods exceeds Rs 20 lakhs.
In a circular, the Finance Ministry has also relaxed norms by increasing the exemption limit. According to the norms, Goods and Service Tax (GST) is exempted to all individuals whose monthly maintenance charges are less than Rs.7,500.
The Ministry has further also clarified that RWAs are entitled to take input tax credit (ITC) of Goods and Services Tax (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.
The Ministry has also said that in such cases the ceiling of Rs.7,500 per month per member shall be applied separately for each residential apartment owned by him.
Why is the outrage?
The sense of false outrage over new tax circular comes on the pretext of a notion that the Finance Ministry has introduced a new tax structure into the housing sector, especially Resident Welfare association, which hitherto were free of any tax system as claimed by the media and some section in the social media.
However, it is untrue as a ‘Service tax’ system is already in place to tax flat owners on the monthly maintenance bills they pay to RWAs.
GST: More tax-friendly than previous Service tax regime
In the earlier ‘Service tax’ system, the system of tax credits never existed. The GST rules will now provide for an option for getting tax credits on services and goods as mentioned above.
According to popular Twitter economist Ashu Muglikar, there has been a lot of improvements within the proposed GST introduction. Firstly, the exemption limit on the annual turnover of RWA by way of supply of services and goods has been increased from Rs.10 lakhs to Rs.20 lakhs.
Secondly, If a person has multiple apartments under the limit of Rs.7,500, the exemption rules apply to all of those apartments, which was not available in the earlier tax system.
For example, if a person owns two residential apartments in a residential complex and pays Rs 15,000 per month as maintenance charges towards the maintenance of each apartment to the RWA (Rs.7,500 per month in respect of each residential apartment), the exemption from GST shall be available to each apartment.
Thirdly, the new GST provisions bring in exemption limit of Rs.7,500. Any registered RWA can collect GST only if actual individual home maintenance is Rs.7,500 or more. Earlier tax system had no such lower threshold.
The proposed GST introduction into monthly maintenance charges paid by the individual flat owners to RWAs is neither a new one nor a form of tax terrorism as claimed by sections of media. In fact, the recent changes will bring in more transparency by bringing efficient and effective means of tax collection. Most importantly, it makes maintenance much lesser with raising exemption limit and by bringing more clarity on tax credits.