GST applicable only on amount exceeding ₹7,500 collected by RWAs
Two issues were challenged: An AAR order levying tax on the entirety of the contribution to RWA, and a finance ministry circular dated July 22, 2018, amending the methodology to levy GST on contribution to RWA
In a ruling that could benefit resident welfare association (RWA) members across the country, the Madras High Court has said GST is applicable only to monthly maintenance amount exceeding ₹7,500 – not the full amount.
The decision overturns an Authority of Advance Rulings (AAR) order and a subsequent finance ministry circular, which said exemption would be granted only if the charges are limited to ₹7,500 per month – beyond which the full amount would be taxed.
“The conclusion of the AAR as well as the circular to the effect that any contribution above ₹7,500 would disentitle the RWA to exemption, is contrary to the express language of the entry in question and both stand quashed,” Justice Anita Sumanth said in the July 1 order. “To clarify, it is only contributions to RWA in excess of ₹7,500 that would be taxable under GST Act.”
In case of big RWAs, especially in Tier-1 cities, every household could save up to ₹1,350 per month if the executive board of the RWA takes a tax position based on this ruling, Economic Times quoted an expert as saying. But the expert, Rajat Mohan, senior partner at AMRG Associates, also cautioned that the department could challenge the order in a higher legal forum and tax officers in other states could deny the interpretation of the Madras HC.
The HC was hearing petitions filed by three RWAs in apartment complexes (Greenwood Owners Association, Oceanic Owners Association and TVH Lumbini Square Owners Association) located in different parts of Chennai and one individual (Sanjay Gupta).
Two issues were challenged: An AAR order levying tax on the entirety of the contribution to RWA, and a finance ministry circular dated July 22, 2018, amending the methodology to levy GST on contribution to RWA.
The AAR, in its order in June 21, 2019, stated that grant of exemption was conditional upon the contribution being an amount of ₹7,500 or less. “If the contribution exceeded the sum of ₹7,500, the very entitlement of that RWA to exemption would stand defeated and the entirety of the amount collected would have to be brought to tax,” it said.
Following this, a circular issued by the Central Board of Indirect Taxes and Customs, dated July 22, 2019, explained that the exemption from GST on maintenance charges charged by an RWA from residents is available only if such charges do not exceed ₹7,500 per month per member. “In case the charges exceed ₹7,500 per month per member, the entire amount is taxable. For example, if the maintenance charges are ₹9,000 per month per member, GST @ 18 per cent shall be payable on the entire amount of ₹9,000 and not on (₹9,000 – ₹7,500) ₹1,500,” it said.
After hearings, the bench observed that tax slab means income up to that level and above that will be treated differently. “The intendment of the exemption entry in question is simply to exempt contributions till a certain specified limit. The clarification by the GST Department even as early as in 2017 has taken the correct view,” the bench said disposing of the matter.
