The West Bengal Authority for Advance Rulings (WBAAR) has stated that the Goods & Services Tax (GST) exemption for Resident Welfare Association (RWAs) on monthly contributions up to ₹7500 would be member-specific.
Experts believe that further clarity is needed regarding the applicability of GST on ad hoc charges collected by RWAs.
A 2019 circular stated that the supply of service by an RWA to its own members, through reimbursement charges or contributions up to ₹7,500 per month per member for services and goods used in a housing society or a residential complex, is exempt from GST.
This threshold was previously ₹5,000 per month. This exemption applies to RWAs with an annual turnover of ₹20 lakhs or more from supplying services and goods.
Disposing of an application from Kolkata-based Fortune Estate and considering the GST notification, WBAAR stated: “It appears that the benefit of exemption is entirely member-specific.” This means that if an RWA collects up to ₹7,500 per month from a single member through reimbursement of charges or a share of contribution, the RWA will not be liable to pay tax on that amount. This applies even if other members, or the same member with multiple flats, contribute amounts exceeding ₹7,500 per month.
WBAAR explained in a recent ruling: “If an RWA registered under the GST Act collects ₹7,000 per month as maintenance charges from one member and ₹9,000 from another member in the same residential complex, the RWA shall not be liable to pay tax on the ₹7,000.” The ruling further concluded that the applicant would not be liable to pay tax on amounts collected from members by way of reimbursement of charges or contributions, provided these amounts do not exceed ₹7,500 per month per member.
According to Harpreet Singh, Partner at Deloitte India, this ruling is favorable as it correctly concludes that the exemption should be evaluated for each member and each apartment. However, he notes that another area of dispute not covered in the ruling is what constitutes maintenance charges. RWAs often collect ad-hoc charges for one-time expenses, such as asset replacement, one-off repairs, contingency or asset-replacement funds, and event-specific collections. There is still a need for clarity on the GST treatment of such expenses.
Ruling by AAR is applicable only on applicant and on the jurisdictional officer. However, it be referred in similar matter at various legal forum. At the same time, the ruling can be challenged in the High Court or even the Supreme Court. Meanwhile, many of AAR rulings have also been key to policy changes.