GST applicable on voluntary payments made by members to housing societies, says AAR

16/06/2022
An Authority for Advance Ruling (AAR) ruling has said that any voluntary payment made to a housing society by a member or a resident should attract Goods and Services Tax (GST).

The ruling in the matter of Monalisa Co-Operative Housing Society was about whether GST is applicable on any donation or "gracious payment" made by an outgoing member.

Maharashtra AAR ruled on May 31 that there is no voluntary payment as it is nothing but a consideration towards the satisfaction of the outgoing member. "There is no voluntary payment made by the outgoing member but a consideration received by the society against satisfaction of the outgoing member on the supply of services received in the past during his stay as a member in society and for taxable activities of the applicant in the future pertaining to major repairs to be undertaken," the AAR said.

Tax experts say that this ruling could lead to some complications under the GST framework for many other transactions as well.

"For any transaction to be taxable under GST, there needs to be a quid pro quo between the exchange of consideration (money) and the supply of service. The ruling has been pronounced on the basis of the conjecture that there is a linkage between voluntary or gratuitous payments made by outgoing members and the past services, "said Harpreet Singh, partner, KPMG India.

Many members tend to donate money to the housing society when they sell the house. The AAR ruled that this was nothing but a payment against "services" the society has been providing all these years that may have had notional value and hence it should be taxable.

AAR said that the money received by the society was for the supply of services. GST has a concept called "supply of services," which is used to figure out if a transaction is taxable or not.

The AAR cited parts of the Model Bye Laws that say the society can't accept a payment from a transferor or transferee that was made on their own. Such transactions are similar to service charges collected by a restaurant on which GST is applicable. The AAR said that the customer would not be able to refuse to pay the service charges if she is not happy with the services of the restaurant.

Though the collection of charges by the society might be illegal under some other law, since it is covered by the scope of supply and other ingredients of the GST levy, it is taxable, the AAR said.

Team Edu-Visor