GST on apartment maintenance

GST on apartment maintenance

Hello,

I need advise on rules & legalities related to GST on apartment maintenance & was wondering if you can help.

My query:
Recently, there has been a takeover from builder by association (RWA) resulting in maintenance rate hike (per sqft) in our apartment complex in Bangalore. This has caused significant cost increase for larger sized units, which are now over the GST cap of 7500/month (and will be taxed @18%).

Are there legal ways to get the costs down & save GST on apartment maintenance? Some suggested to cost split (like fixed monthly + variable/sinking/corpus fund) to keep the maintenance cost below GST? Does water bill or common area electricity etc. utilities come under GST? There are many apartment complexes in our neighborhood who seem to be following the practice of cost split to help owners but when we consulted our internal CA, he stated it is illegal & can cause penalties for all owners if audited.

Here's the summary of the evaluation provided by our internal CA:

1) No adjustments possible for the apartments who will pay more than Rs 7500 per month (Electricity & Water expenses adjustment cannot be made).

2) GST credit - Owners who pay GST will not get full credit, GST credit calculation is a complex one. There is nothing called as Giving credit back to owners, It is a cost for them.

3) There are cases where apartments are willfully trying to avoid tax. This is a huge risk to all the apartment owners. GST Department periodically issues notices for Scrutiny of accounts and in case of violation, heavy penalties and Interests are levied and this burden needs to be borne by all the apartment owners (even the ones who are not liable to pay GST).

In contrast, we also received verbal confirmation from few other CAs that cost split can be done (and is not illegal) but that depends on the nature of expenses which are included in maintenance charges.

Any suggestion in this regard would be appreciated. We want to reduce the GST burden on the owners yet do it within the legal boundaries.

Hence, I seek your advise.

Thanks,
Mohit

Asked 4 years ago in GST

Water charges and electricity charges are paid out of maintenance charges collected and hence you cant save GST on same by showing it as payment against expense.

GST wont be charged only on corpus fund.

GST shall be charged even on sinking fund.

As the ITC of maintenance charges would be of personal nature no one would be able to take it unless apartment are rented out.

You can directly pay some of the salaries to your cleaning and such other expense as there is no actual track of this rather than directly paying water or electricity bill.

There can be ways to save GST.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you.

Naman Maloo

CA, Jaipur

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Thank you. But can someone elaborate on how GST can be saved on maintenance? What are the ways?
I have read in many blogs & referenced court rulings that confirm "Sinking Fund" doesn't come under GST and it is mandatory to have this component as per by-laws.

Keep that in mind, let's take an example.

Say the maintenance rate decided by association is Rs.3/sqft and the services are conducted by a thrid party vendor. Can the maintenance cost be broken like: Rs.2.5/sqft towards fixed monthly maintenance + 0.25 towards sinking fund/corpus fund.

I believe the sinking fund can then used for planned or unplanned major repairs & replacement of depreciating assets (like STP, generators, water pumps, painting of the building etc.) while the fixed maintenance for regular monthly expenses to keep the services active.

Or (if sinking fund will not help) are there any other suitable expense heads that can used to categorize & break the maintenance cost to save GST? Corpus fund? If yes, kindly suggest. What nature of expenses should/can be included in maintenance charges to save GST?

I would appreciate if the answers are specific (like the example above) instead of generic.

Thank you again.

Asked 4 years ago

- Collection of property tax,water tax, electricity charges by RWA from individual flat owners is not liable to GST as the RWA is collecting such charges on behalf of the Govt.

- Sinking fund is mandatory under the bye-laws of the society. Charges collected by the RWA for the services provided by it through third party vendor are liable to GST such as car parking expenses, repairs and maintenance of building., non-occupancy charges,interest for late payment.

- For detailed discussion, please take phone consultation.

Vivek Kumar Arora

CA, Delhi

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Dear Queriest,

In crisp wordings, GST will be applicable. Creating Sinking find and all with the only view to keep threshold below INR 7,500/- will be considered as tax evasion by the department.

Please also note old court rulings can not be referred in GST with clear jurisprudence. Further, even if it can be held to be good there will be extra costs for owners if this has to be litigated before the department.

So the risk will be huge vis a vis compared to GST saved. In the initial two stages of appeals, there can not be any relief anticipated as the department always take the views in favour of revenue.

So, it's better to avoid risk and pay GST. Or if possible convince the service provider to keep the services below INR 7,500/-.

Trust this clarifies, in case of any concern please feel free to revert. Or you can reach directly through a phone consultation.