GST Advisory

Implications of GST on Resident Welfare Association (RWA)

After the spur of urbanization in India, countless housing societies have been sprawling across urban and semi-urban areas. Most of the families in metropolitan cities prefer living in a well-maintained housing society^[1] or a locality with all the necessary amenities. This Urban sprawl created a need for someone to provide services that would fulfill the demands of all society members; this is where RWA was born. Read the full analysis of the implications of GST on RWA.

What is RWA?

RWA is a Non-governmental organization that represents the needs of a specific urban or suburban locality, particularly in Indian societies. RWA’s are not official organs of government, and even illegal societies and slums can form RWAs to represent the demands of the citizens of the society.

It was from the year 2005 that services provided by RWAs were brought within the range of Indirect Taxes and Service, the tax was levied on services provided by such associations. At that time exemption limit was kept at Rs 3000 which went up to Rs5000 In the GST era. Now after CBICs circular the exemption limit has been increased to Rs 7500 per month per member.

When is GST applicable on maintenance charges

As per CBICs circular, Flat owners will have to pay 18% GST if their monthly contribution to Resident Welfare Association (RWA) is more than Rs 7500. RWA’s need to collect GST on monthly contributions charged from its members, if the annual turnover of RWA is more than Rs 20 lakhs. Although RWA’s are exempted from GST in cases where annual turnover of RWA is more than Rs 20 lakhs and monthly maintenance charge is less than Rs 7500.

Annual turnover of RWA	Monthly maintenance charge	Exemption status
More than 20 lakhs	More than Rs 7500	No
More than 20 lakhs	Less than Rs 7500	Yes
Less than 20 lakhs	More than Rs 7500	Yes
Less than 20 lakhs	Less than Rs 7500	Yes

It was further clarified that if a person owns two or more flats in a residential society, in such a case the person will be considered as a member of each residential apartment separately. The ceiling of Rs 7500 per month per member will be applied separately for each residential apartment. For example, if a person owns two apartments in a residential complex and pays Rs 15000 per month (Rs 7500 per ceiling) as maintenance charge to RWA, the exemption from GST shall be available to each apartment.

RWA’s are entitled to take Input Tax Credit (ITC) of GST paid by them on capital goods such as water pumps, lawn furniture, etc. ITC helps an entity to reduce the GST amount it has paid on goods or services from the amount of GST it has to pay to the government. It has also been stated in CBICs circular, that tax should be calculated on the entire amount of maintenance charges and not on the amount exceeding Rs7500.

Impact of GST on other charges collected by RWA

Services provided by Central Government, State government, Union Territory or local authority are exempted from GST. Taxes such as Property Tax, Water Tax which are collected by RWA are exempted from GST. Similarly, GST is not leviable on other charges such as Non-agricultural tax, electricity charge, etc which are collected per flat from flat owners. However, if these charges collected from flat owners are used to provide services such as electricity backup, drinking water facility and many others, then such charges collected by society are liable to GST.

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Conclusion

The discussion above comes down to the final result that if the amount of maintenance charge collected by RWA is more than Rs7500 per flat and the annual turnover of RWA is more than Rs 20 lakhs, GST will be levied on maintenance charges. Additionally, RWA’s are entitled to take Input Tax Credit (ITC) of GST paid by them on capital goods (generators, water pumps, etc) and input services such as repair and maintenance services.