RWAs’ GST liability depends on annual turnover, maintenance fee
If RWA members contribute less than ₹7,500 a month each, the said RWA is exempt from paying GST, irrespective of the annual turnover
Even after more than two years of its implementation, there are ambiguities that crop up regarding the implementation of the goods and services tax (GST). For instance, there was little clarity on the applicability of GST on maintenance paid by home owners to residents’ welfare associations (RWAs) for the upkeep of societies. The government recently clarified on this particular aspect.
In a notification dated 22 July 2019, the ministry of finance said that if RWA members contribute less than ₹7,500 a month each, the said RWA is exempt from paying GST, irrespective of the annual turnover.
Note that the rule is not new but was amended to increase the limit. “It is only the clarification that has come recently. The limit was earlier ₹5,000, which was increased to ₹7,500 in January 2018," said Pratik Jain, partner and leader, Indirect Tax, PwC India. However, RWAs are required to pay GST on monthly subscriptions if the subscription is more than ₹7,500 per member and the annual turnover of the RWA—by way of supplying of services and goods—is ₹20 lakh or more. Also, this GST will be charged on the entire amount of maintenance and not just on the amount exceeding ₹7,500.
The RWA does not need to pay GST if the annual turnover is ₹20 lakh or above, but the members are paying less than ₹7,500 as maintenance charge per month each.
For instance, if a housing society has 100 apartments and the monthly maintenance charges are around ₹4,000 each unit, there will be no need to account for GST, as the monthly contribution is below ₹7,500, even though the annual turnover of the RWA is ₹48 lakh, which is over ₹20 lakh a year. Similarly, if the monthly contribution in a high-end housing society with 10 apartments is ₹15,000 per unit, the annual collection will be ₹18 lakh, which is less than ₹20 lakh a year, the contributions of its members will not attract GST.
GST rules also allow RWAs that have to collect GST on monthly contributions to claim input tax credit (ITC). ITC helps an entity to reduce the GST amount it has paid on goods or services from the amount of GST it has to deposit to the government.
“There were representations made to the government in this regard, and hence, they have clarified. Obviously it is a relief for the residents, particularly those who reside in smaller apartment buildings and complexes. Of course, if you look at the luxury segment, the maintenance amounts might be much higher than ₹7,500. At least it provides relief to a large section of society," said Jain.
The government’s notification also states that by coming under the ambit of GST, RWAs could in fact lower their tax burden by availing the benefits of ITC, which they would have paid to their suppliers for expenses on goods such as buying generators, water pumps, lawn furniture, taps, pipes, or other hardware as well as for services such as repairs and maintenance.