GST & Housing Society’s Accounting

Goods and Service Tax, i.e. GST…! Lot has been said/published and generally disseminated as to how GST functions. We all know that GST facilitates better ‘Input Credit’ and as such, overall tax liability is less. Further, GST is of course, not a One Tax but a group of taxes which work on similar line. The Head of the Family is Central Goods & Service Tax Act (CGST) and we’ll refer it henceforth for the simplicity. So, the very first thing to note is CGST is applicable on all the Persons u/s 2(84) and sub clause (i) 
specifically includes Co-operative Societies of all types. But wait, it’s not enough to be ‘Person’, but Section 9 says that every ‘Taxable Person’ has to collect and pay GST. So the question is, is your society a Taxable Person? And the definition of Taxable person u/s 2(107) says that if you are required to take Registration, either u/s 22 or 24 then you are taxable person (Isn’t Law a Treasure Hunt of the Sections? Welcome to maze…!) This brings us to an important question. Who should take Registration u/s 22? Though there are several thing about this section, let’s stick to those relevant to the Housing Cooperative. Section 22 spells out that you are required to take the Registration, if the aggregate turnover in a financial year exceeds twenty lakh rupees. What should be taken as Turnover? Now those charges for which services are not provided by the Society, such as Water charges or other such public utilities and property tax, are not part of turnover. Hence, it is better for the society to issue a separate reimbursement bill for these services, charging each member at proportionate actuals. However, the maintenance charges and the charges for all other facilities which the society levies on its members are very much part of the society’s turnover and this is even reinforced by the definition of business u/s  2(17)(e) that it includes provision by a club, association, society, or any such body (for subscription or any other consideration) of the facilities or benefits to its members. Thus, are the aggregate charges received by your society more than 20 Lakhs? Welcome to GST…

Now that if you have to take registration, next question is what is the rate of tax? Under the heading 9995 — Services of Membership Organization, it is 18%, approximately 2.5% more than what you were earlier required to pay under Service Tax.

But there is good news as well.

Your society buys several products and utilises several services in course of ensuring welfare of its members. In that process, it used to pay different types of Sales Taxes and Excise etc., though only some of the Sales Taxes were visible on the bill. Now, your society shall pay GST to suppliers of goods as well as services and only the balance amount to Government. This will reduce over all tax liability for many societies, especially the bigger ones.

But wait, what happened to that other section for registration, section 24? To understand it, we first have to follow something called ‘Reverse Charge Mechanism’ – RCM. Now when Society collects Maintenance Charges from the Members, it collects GST on it and pays to Government. When it buys Goods or Service from Registered Dealer, it pays the GST to supplier. BUT, when it buys them from Unregistered Dealer, under RCM, it will have to pay the GST on those goods/services out of its own pocket to government and can, of course, claim credit of it. Thus, this is not necessarily a big burden on society. The sting is in the second part of RCM. There are certain Services, for which, it is the responsibility of buyer to apply RCM, collect GST and pay it to the government, e.g. Legal Services for Business Entity. Now, section 24 says that you have to take registration if RCM is applicable to you and the turnover limit is not required to be fulfilled! Thus, even a small society with lower turnover, availing these services, shall he required to register.

There is an important reprieve, maintenance charges are less than Rs. 5,000 per member per month, then the GST rate applicable is 0%. In short, you have to take registration but not charge the GST. But whether GST liability is there or not, Now once registered, the clumsy and time-consuming Statement updating is mandatory. Thus, every registered society shall be required to upload three statements a month and one annual statement.

There is one more serious issue, which is a problem for Housing Societies. U/s 12 of the Act, GST would be charged on the date of issue: of invoice by the supplier or the last date on which he is required. Thus, even where the member defaults on payment of the charges, liability to pay GST would arise immediately in the next month. This will be financially burdensome for co-operative housing societies, which have working capital troubles. This may even increase the friction in the society, since timely collection of dues would become a crucial matter.

RCM, Time of Supply and cumbersome return filing are grave issues and they are hitting every single organization, especially of smaller size, in a big way. It is expected that the Government, in its infinite wisdom, shall soon take cognizance of it and rectify some of the anomalous provisions. Meanwhile, it is important for all those covered under this Act, to register themselves as soon as possible for GST. Ultimately, this is a new regime, introduced somewhat hurriedly and unprepared, by the government, intent to go for an important Tax Reform. 

Courtesy: CA Ajit Joshi