TomorrowMakers

GST may benefit potential property buyers, but current housing society members will not see similar advantages. Here’s why…

The Indian economy has now adopted the single tax bracket of Goods and Service Tax (GST), and like everything else, housing society will be included in this reform too. There are, of course, two sides to this new regime; one being, property prices are expected to reduce across the country. The other - living in housing societies is set to take an upward swing, directly impacting the customer’s pocket. This will come as a huge blow to housing societies, which were, until now, beyond the ambit of service tax. This means that societies will be liable to pay tax under certain conditions. This will come as a huge blow to housing societies, which were, until now, beyond the ambit of service tax. This means that societies will be liable to pay tax under certain conditions.

From 1st July 2017, housing societies charging members a monthly maintenance of Rs. 5,000 (per house) will be charged 18% GST. Alternatively, if the society’s total annual maintenance collection exceeds Rs. 20 lakhs, GST will be charged at 18%. However, several things will be excluded from this 18%, such as municipal tax, property tax, water bill, non-agricultural land tax, and even sinking fund, among others.

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Meanwhile, housing societies with maintenance below Rs. 5,000, but large enough for the annual total to go above Rs. 20 lakhs, will also come under GST. If the threshold limit is above Rs. 20 lakhs but less than Rs. 70 lakhs, the housing society can opt for the composition scheme. Under GST, the composition scheme allows registered tax payers to pay tax at lower rates, if their turnover is less than the specified limit, depending on certain conditions. Registered tax payers with a turnover of less than Rs. 75 lakhs in a financial year (Rs. 50 lakhs in Uttarakhand), can opt for this scheme. 

Alternatively, buildings will be allowed to form separate societies to reduce maintenance costs to below Rs. 20 lakhs.  

What can CHS members do?
Co-operative Housing Societies (CHS) will also have to revise their maintenance bill heads to bifurcate taxes that were merged with overall maintenance costs earlier. By generating multiple bill heads, the Residents’ Welfare Association (RWA) can show that levies are directly being paid by the society. This will help in reducing the balance maintenance amount on which GST would be calculated.

Input tax credit
Should a CHS, undergo any maintenance or renovation activity that requires cement, paint or steel, the tax paid on the purchase of these materials will be eligible for deduction from the total amount paid under GST. However, to avail this, the RWA will have to take advantage of input tax credit as the repair fund will attract 18% tax. 

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Other charges
Unlike annual maintenance, utility bills, such as electricity and water bills, will not come under GST. The reason for this is that CHS does not supply water or electricity to housing society members. Like before, a separate tax will be levied on water and power usage, in this new tax regime. 

Break-up of GST
Currently, housing societies are paying 15.55% tax on maintenance charges, which includes 15% service tax, 0.5% Swachh Bharat cess and 0.05% non-agriculture tax. The change post GST will see an increase of 2.5% (a total of 18%), causing an additional burden on residents. 

On the whole, the different measures being brought under GST in the realty sector are expected to make living in a gated, housing society slightly more expensive for society members.  

 

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