Collecting the Deposit from Apartment Members

[MUNIRAJ SRINIVASAN]

Dear Sir,

My client is registered under the society in Apartment and collecting the Member fee from its members and same amount has to spend for construction of wall and repairing the water line whether service tax is applicable or not? can give any notification or any case law

[DR.MARIAPPAN GOVINDARAJAN]

Dear Sir,

Please refer Circular No. 175/1/2014-ST, dated 10.01.2014 in this regard.

Regards,

Dr. M. Govindarajan

[PAWAN KUMAR]

Dear Sir,

As per circular No.175 dated 10.01.2014, contribution received from an individual member up to ₹ 5000/- by any society or RWA per month is exempt. If this contribution is exceeded, the excess amount shall be taxable.

[MUKUND THAKKAR]

A new circular has been released by Service Tax department on 10th Jan 2014 attempting to clarify the confusion surrounding applicability of service tax on dues collected from Members.

Based on the past circulars of March 2012 and June 2012, up to ₹ 5,000/- per month per member of collection is exempted from service tax. Even though there are varied opinions on interpretation of the same, few societies where the collection was above ₹ 5,000/- were only collecting service tax on the additional amount.

The latest circular clarifies this particular aspect – if a member is paying more than ₹ 5,000/- per month – service tax needs to be collected on entire amount and not just on the amount exceeding ₹ 5,000/-.. For example, if some one is paying ₹ 5,100 the society is now liable for service tax of 5,100*12.36% = ₹ 630/-.

Couple of other clarifications as well which will reduce some confusion:
Service tax is only applicable on the amount collected from members whose contribution is more than 5,000/- per month per flat. If in a society there are members who are contributing less – the amount collected from them will not be liable for service tax.

Service Tax is not applicable where money is collected by society from members to pay to a third party purely as a convenience – like paying water bills issued to members in bulk.

Read below the extract from the circular that attempts to clarify various doubts:

Sl. No.	Doubt	Clarification
1.	(i) In a residential complex, monthly contribution collected from members is used by the RWA for the purpose of making payments to the third parties, in respect of commonly used services or goods [Example: for providing security service for the residential complex, maintenance or upkeep of common area and common facilities like lift, water sump, health and fitness centre, swimming pool, payment of electricity Bill for the common area and lift, etc.]. Is service tax leviable? (ii) If the contribution of a member/s of a RWA exceeds five thousand rupees per month, how should the service tax liability be calculated?	Exemption at Sl. No. 28 (c) in notification No. 25/2012-ST is provided specifically with reference to service provided by an unincorporated body or a non–profit entity registered under any law for the time being in force such as RWAs, to its own members. However, a monetary ceiling has been prescribed for this exemption, calculated in the form of five thousand rupees per month per member contribution to the RWA, for sourcing of goods or services from third person for the common use of its members. If per month per member contribution of any or some members of a RWA exceeds five thousand rupees, the entire contribution of such members whose per month contribution exceeds five thousand rupees would be ineligible for the exemption under the said notification. Service tax would then be leviable on the aggregate amount of monthly contribution of such members.
2.	(i) Is threshold exemption under notification No. 33/2012-ST available to RWA? (ii) Does ‘aggregate value’ for the pusrpose of threshold exemption, include the value of exempt service?	Threshold exemption available under notification No. 33/2012-ST is applicable to a RWA, subject to conditions prescribed in the notification. Under this notification, taxable services of aggregate value not exceeding ten lakh rupees in any financial year is exempted from service tax. As per the definition of ‘aggregate value’ provided in Explanation B of the notification, aggregate value does not include the value of services which are exempt from service tax.
3.	If a RWA provides certain services such as payment of electricity or water bill issued by third person, in the name of its members, acting as a ‘pure agent’ of its members, is exclusion from value of taxable service available for the purposes of exemptions provided in Notification 33/2012-ST or 25/2012-ST ?	In Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, it is provided that expenditure or costs incurred by a service provider as a pure agent of the recipient of service shall be excluded from the value of taxable service, subject to the conditions specified in the Rule. For illustration, where the payment for an electricity bill raised by an electricity transmission or distribution utility in the name of the owner of an apartment in respect of electricity consumed thereon, is collected and paid by the RWA to the utility, without charging any commission or a consideration by any other name, the RWA is acting as a pure agent and hence exclusion from the value of taxable service would be available. However, in the case of electricity bills issued in the name of RWA, in respect of electricity consumed for common use of lifts, motor pumps for water supply, lights in common area, etc., since there is no agent involved in these transactions, the exclusion from the value of taxable service would not be available.
4.	Is CENVAT credit available to RWA for payment of service tax?	RWA may avail cenvat credit and use the same for payment of service tax, in accordance with the Cenvat Credit Rules.

 

AI Summary

Service tax on RWA member contributions: entire member contribution becomes taxable if threshold exceeded under recent circular. Contributions collected by RWAs for common services are exempt up to a prescribed monthly ceiling per member; if a member's contribution exceeds that ceiling, the entire contribution of that member becomes ineligible for the exemption and service tax is leviable on the aggregate amount. Payments collected and remitted by the RWA as a pure agent for members, meeting rule conditions, are excluded from taxable value. The threshold exemption for small providers excludes exempt services from aggregate value. CENVAT credit may be availed and used for service tax payment.