Changes In Maintenance Charges Levied Under GST

The systematic regime of the Goods and Services Tax (GST) came into existence in 2017. As a wave of positive change, it brought down the cost of homes while it simplified the purchase process by eliminating multiple taxes, like service tax and value-added tax, which were levied on under-construction properties. However, discontent among apartment owners of housing societies arose when the rate of monthly maintenance charges was increased.

MakaaniQ puts some light on the issue:

Homeowners burdened with high maintenance charges

A GST rate of 12 per cent, inclusive of the value of land with input tax credit was welcomed as the single slab ensured uniform price and ease of compliance. Although it was six per cent above the existing taxes for consumers of under-construction properties, this proved to be beneficial as it removed the dual taxation in the form of value-added tax (VAT) and service tax. Industry leaders expressed their confidence that even hesitant homebuyers would now be motivated to buy properties with such an easy tax structure.

The new tax regime hiked the maintenance charges in apartment societies and it did not go down well with many Resident Welfare Associations (RWAs) and apartment owners. Maintenance charges are the monthly amount collected for the upkeep of common areas and facilities as well as services like security provision. The GST replaced the earlier rate of maintenance charges of 15.55 per cent for apartments and societies with an 18 per cent slab, a clear increase of 2.5 per cent. The earlier rate covered a service tax of 15 per cent, a Swachh Bharat tax of 0.5 per cent and a non-agriculture tax of 0.05 per cent.

Some facts about maintenance charges under GST

*The criteria for payment of this tax was that the maintenance charges of the property owners, barring utility bills, property tax or stamp duty, should exceed Rs 5,000. Recently, post a GST Council Meeting in Mumbai, this monthly limit has been extended up to Rs 7,500.

*In other words, the annual balance of the total charges levied by housing societies should be over Rs 20 lakh for payment of this tax, again excluding utility bills, property tax and stamp duty.

*For this purpose, housing societies were required to register themselves under the GST.

*Earlier the government also ruled that, "Reimbursement of charges or share of contribution up to an amount of Rs 5,000 per month per member, for sourcing of goods or services from a third person for common use is not liable to GST.”

*Smaller properties within the same housing complex whose monthly bill did not exceed Rs 5,000 are not liable to pay the charges yet bigger apartments with higher monthly bills in the same complex will have to pay GST.

*The system of maintenance charges tax existed under the ambit of Service Tax as well which only covered services and not goods. But the new system under GST has brought newer societies under its cover as it will also include taxes on goods purchased too.

*GST will be exempted for services provided by government or local authorities to persons other than business entities.

*The GST Council had decided that Service Tax exemptions will be continued for services provided under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY).

*Defending its decision, the government stated that an input tax credit (ITC) availed by a society would be an advantage for RWAs and reduce their burden. The input tax credit will be applicable for all the various supplies received by it including security services or payment of audit fees. That is, the housing society can deduct the input tax already paid to the vendors while paying the final output tax to the government.

*Committee members of many RWAs argued that their associations are formed by the society members themselves who work solely for the benefit the society members, thus such as law is a burden on the residents.

*Sinking fund, repairs and maintenance fund, car parking charges, non-occupancy charges, or simple interest for late payment of dues owed to a Cooperative Housing Society (CHS) will continue to attract GST, as per FAQs formed by the Tax Research Unit, Ministry of Finance (MoF).