Mumbai: The Karnataka Authority for Advance Rulings (AAR) has held that contributions collected from members of a co-operative housing society (CHS) towards a sinking fund â€” meant for future upkeep of the society â€” are subject to the goods and services tax (GST) at 18%. It further held that the GST levy would be triggered upon receipt of the amount from the members and not in the future when the sinking fund is actually utilised, such as for painting of the building and common areas, or replacement or repairs of assets such as lifts or generators.
The residentsâ€™ welfare association (RWA) of the Bengaluru-based Olety Landmark Apartments had approached the AAR to ascertain whether it is liable to pay GST on the amounts which it collects from its members towards the sinking fund (also termed as corpus fund). The basic foundation of GST is that it is a tax on the â€˜supplyâ€™ of goods or services. The CHS was collecting contributions from its members towards the sinking fund as it was required to do so under the bylaws (statute), it stated in its submissions.
The RWA contended that the amounts collected towards the sinking fund are in the nature of a â€˜depositâ€™ for future planned or unplanned events and not for the purpose of supplying any goods or services. Thus, the sums collected for this purpose should be outside the GST ambit. It explained that the accounts of the sinking fund are maintained separately and the funds will be utilised for the specific purposes and not for regular maintenance activities.
However, the AAR distinguished between a â€˜depositâ€™ and an â€˜advanceâ€™. It held that an amount that is not returnable to the members cannot be termed as a deposit. It also stated that the bylaws of the CHS were silent on whether the amounts so collected are refundable. Hence, the contributions are undoubtedly advances for future supply of services to the members and are not deposits.
While several indirect tax experts are of the view that even if the sinking fund contributions are to be treated as an advance, the GST levy should be triggered only at the time of utilisation of the fund. However, the AAR held that the GST is triggered on receipt. In other words, the CHS would have to collect and pay GST against the contributions to the sinking fund.
While advance rulings are binding on the applicant and the tax department, they do have persuasive value in assessments.
It should be noted that a CHS has to levy and collect GST at 18% if the charges collected from members exceed Rs 7,500 per month, per member. A smaller CHS with an annual turnover of Rs 20 lakh or less does not have to register under GST and does not have any GST obligations.