Introduction
Housing societies, also known as Cooperative Housing Societies (CHS) or Residents Welfare Associations (RWAs), are collective organizations formed by residents of apartment complexes to manage and maintain common infrastructure. Their primary motive is not profit, but collective welfare. However, the Goods and Services Tax (GST), introduced in 2017, brought these societies under its ambit under certain conditions.
The intention was to bring accountability, transparency, and uniformity in taxation even for entities operating in the so-called “non-profit” space — especially those managing large-scale funds and providing organized services.
This article explores the why, when, and how of GST on housing societies, their real-world compliance behavior, and areas where societies skirt the law — sometimes knowingly, sometimes due to poor advice.
1. Why GST on Housing Societies?
Understanding the Tax Philosophy
GST is a destination-based consumption tax, levied on the supply of goods and services. Even though RWAs are non-profit by constitution, they:
- Collect maintenance charges
- Employ vendors and contractors
- Offer common utilities and infrastructure
- Sometimes generate income from non-member sources (renting out halls, mobile towers, etc.)
From a legal standpoint, these are all “supplies” of services for consideration, and housing societies are treated as distinct legal persons under Section 2(84) of the CGST Act.
Conclusion: The law is not taxing the act of forming a society — it taxes the delivery of paid services, regardless of whether the recipient is a member or not.
2. GST Applicability: The Two Key Thresholds
To prevent compliance burden on small societies, the law applies GST only if both of the following conditions are met:
A. Aggregate Turnover Exceeds ₹20 Lakhs Per Annum
This refers to the total taxable and exempt income from all sources during the financial year.
Inclusions:
- Monthly maintenance and repair contributions
- Sinking fund (if used for service-related activities)
- Parking fees
- Non-occupancy charges
- Clubhouse rental
- Income from advertisements or mobile tower leases
- Late payment charges
Exclusions:
- Corpus fund (capital receipts for long-term reserves)
- Interest on fixed deposits
- Donations or grants (if not linked to services)
Key Insight: Many large societies with 100+ flats easily cross ₹20 lakh annually, especially in metros, even with moderate maintenance fees.
B. Monthly Contribution per Member Exceeds ₹7,500
Even if a society crosses ₹20 lakh in turnover, GST is not levied if individual monthly contributions are ₹7,500 or less. But if it exceeds that amount:
- GST applies on the full amount, not just the excess.
- No partial exemption is allowed (per CBIC Circular No. 109/28/2019-GST).
Example: If a flat is charged ₹8,000/month, GST is applicable on the full ₹8,000, not just ₹500.
3. Compliance on Paper vs. Reality
A. Awareness Levels
In theory, most large societies are aware of the GST rules, especially those with:
- Professional management firms
- Regular statutory audits
- High-end facilities (clubs, gyms, pools, etc.)
But in practice, compliance is inconsistent. Many societies:
- Avoid registration even when turnover exceeds ₹20 lakh
- Underreport income from non-member sources
- Misclassify capital receipts as revenue
- Fail to apply GST on rentals or third-party services
B. Common Reasons for Non-Compliance
- Belief that “We’re Not a Business”
Committees often incorrectly assume that since they’re not-for-profit, GST doesn’t apply. - Split Billing Practices
Some societies issue two separate invoices — ₹7,500 as “maintenance” and the rest under a different head — to avoid the threshold. This is a legally risky practice if not backed by real segregation of services. - Use of Cash or Direct Transfers
Collections and vendor payments outside of bank accounts are sometimes used to keep turnover below ₹20 lakh — but this violates both GST and income tax norms. - Lack of Audit/Accounting Oversight
Many smaller or mid-sized societies do not appoint qualified accountants, leading to poor record-keeping and ignorance of GST thresholds.
4. Consequences of Non-Compliance
- Tax Liability with Interest: If GST registration was required but not taken, the society can be made liable for tax dues with interest and penalties.
- Denial of Input Tax Credit (ITC): Vendors supplying goods and services to the society may not get ITC if the society itself is not registered.
- Litigation Risk: Disgruntled members, vendors, or even neighbors can trigger audits or notices via complaints or RTIs.
5. Compliance Best Practices for RWAs
- Evaluate GST Applicability Annually: Review the previous year’s turnover and per-member contributions.
- Register Timely: If thresholds are crossed, register under GST to avoid penalties.
- Raise GST-Compliant Invoices: Mention GSTIN, HSN codes, and tax breakup on maintenance bills.
- Pay GST and File Returns: File GSTR-1 and GSTR-3B monthly/quarterly, even if nil.
- Use Professional Help: Hire a CA or tax consultant for regular review and reconciliation.
- Educate Members: Transparency helps justify any increase in maintenance charges due to GST burden.
6. FAQs: GST on Housing Societies
Q1: What happens if only a few members pay more than ₹7,500 per month?
GST is applicable only on those members’ contributions — provided the overall turnover exceeds ₹20 lakh. However, for simplicity, many societies apply GST uniformly across all units if the contribution is standardized.
Q2: Is GST applicable on sinking fund?
If the sinking fund is used solely for future capital expenditure, it is not taxable. But if it’s used for regular repairs or maintenance, it may be considered part of taxable turnover.
Q3: Can societies claim input tax credit (ITC)?
Yes, but only on inputs/services used for providing taxable services, and only if the society is registered under GST.
Q4: Is GST applicable on corpus fund?
No, corpus contributions meant for long-term reserves or capital nature purposes are not taxable unless linked directly to services provided.
Q5: Is interest on late payment of maintenance charges taxable?
Yes, it is treated as consideration for delayed supply and is subject to GST.
Conclusion
GST is not a burden imposed on housing societies for their existence, but a framework for fair and transparent taxation of organized services, even if they’re provided in a non-profit setup. Societies managing significant funds or offering structured services need to evaluate their obligations carefully.
As the GST system becomes more integrated with income tax and banking systems, non-compliance is becoming easier to detect. Societies would do well to align themselves proactively, ensure clean record-keeping, and seek professional advice when in doubt.
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