Hapless Co-operative Housing Society members slapped with 18% GST and Complex Paperwork

Recent implementation of GST Act in India has not only slapped massive 18% GST on Co-operative Housing Society (CHS) member contributions but also burdened them with very complex paperwork.

If one understands the basic tenet of CHS and its working one would immediately understand the absurdity of this idea of levying financial as well as administrative burden. Here is my argument for not levying GST on CHS:

Why GST should not be levied on CHS?

I. CHS works on no-profit, no-loss co-operative model. Here services are received by members from the elected members of the society. People don't have any alternative but to live in a CHS. When CHS is formed by members, they do it out of necessity; and NOT for entertainment or for profit. Housing is a basic necessity of people.

Slapping 18% GST on member contributions is simply a bad idea emanating from a bureaucratic machinery having no experience of CHS movement. There is no basis to levy any GST on CHS.

II. CHS has a very minimum administrative structure. Its Managing Committee members work without any salary or compensation, while engaging in full time Job or Business. Most of CHS are unable to get qualified staff on salary because government has failed miserably in creation of proper training facilities. Although recent amendment of 2013 provides for training but so far hardly anything exists in reality.

CHS of any size are just not equipped to handle calculation of GST on member collections, calculation of GST on Services rendered to them by unregistered service provider under Reverse Charge Mechanism and filing of 37 GST returns.

III. Service Tax sought to be levied on CHS was set aside by a tribunal in a February 2015 order.

Here is a excerpt from the full report: In a recent landmark decision in the case of Matunga Gymkhana, Tahnee Heights CHS Ltd (reported in STO 2014 CESTAT 792) the Mumbai Tribunal has held that Services to members of club/co-operative housing society is not a service by one to another and therefore it is not chargeable to service tax.

Here is small re-cap on relevant GST provisions on CHS.

SAC 9995 : Service by an unincorporated body or a nonprofit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution – (a) as a trade union; (b) for the provision of carrying out any activity which is exempt from the levy of Goods and service Tax; or (c) up to an amount of 5000 rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex. GST: Nil

SAC 999599: Services Provided By Other Membership Organizations N.e.c. GST: 18%

CHS is required to pay 18% GST under above Service Accounting Code viz., 999599.

Issues troubling CHS with introduction of GST: 

1. CHS collects and pays Municipal tax, Water Charges and Sinking Fund from members. Though there is no GST on this heads, will they be added to the total member contribution to check the 20 lakh threshold per year?

2. This limit of 5,000/- pm for housing society is too low for buildings of Mumbai that have come up in last 15-20 years with lifts and requirement of security guards. If at all government wants to levy GST the limit should be at least 15,000/- pm for 'A' class city like Mumbai, Delhi, Chennai, Bangalore etc.

3. Housing society's management is not capable to comply with filing of 37 Returns and meeting the provisions of Reverse Charge Mechanism of GST. Day to day working of CHS depends on service provided by Un-registered Service Providers (below 20 lakh/year threshold) like  Sweepers, Cleaner of drainage pipes, water tank cleaners, plumbers, electricians etc. RCM provisions should not be applicable to Cooperative Housing Society.

-oOo-

More Reading:
* 5 reasons why living in housing society will be expensive under GST - Economic Times
* Society maintenance bill over Rs 5,000? Pay 18% GST - DNA
* Tax hawks fail to understand CHS yet
* Goods & Service Tax (GST): Background & Declared Rates for Housing Societies - Apartment Adda
* How to avoid GST levy on housing societies - India Infoline
* GST Applicability to Cooperative Housing Societies - Moneylife