Understanding Resident Welfare Associations (RWA) and Effect of GST
A Resident Welfare Association (RWA) is a community-driven body that represents the interests and welfare of the residents within a particular locality, typically in urban and semi-urban areas (typically associations in the resident communities). RWAs are formed with the primary objective of managing the day-to-day operations and addressing the needs of the residents within a neighborhood or housing complex.
However, in recent years, the introduction of the Goods and Services Tax (GST) has had significant implications on RWAs, especially regarding their tax liabilities, the way maintenance charges are collected, and how services are taxed. This article explores the role of RWAs and the effect of GST on them.
GST on Maintenance and Service Charges
Under the previous tax regime, service charges collected by RWAs were subject to service tax. However, under GST, the collection of service charges is also taxable, depending on the amount collected by the RWA and the nature of the services provided.
Exemption Limit:
- RWAs with an annual turnover of ₹20 lakhs or less (₹10 lakhs for special category states) are exempt from charging GST on their maintenance charges.
- For those that exceed the turnover threshold, GST is applicable at the rate of 18% of the total service charges collected from the residents.
Key Points
GST on Other Charges:
- Sinking fund, repairs & maintenance fund, car parking charges, non-occupancy charges or simple interest for late payment, attract GST, as these charges are collected by the RWA for supply of services meant for its members.
- GST is not applicable on the membership fees collected by RWAs from their members. Membership fees are generally considered to be a part of the RWA’s operational setup and are not subject to GST.
- Services provided by the Central Government, State Government, Union territory or local authority to a person other than business entity, are exempted from GST. So, Property Tax, Water Tax, if collected by the RWA from individual flat owners, then GST is not leviable.
Similarly, GST is not leviable on Non-Agricultural Tax, Electricity Charges etc., which are collected under other statutes from individual flat owners. However, if these charges are collected by the RWA for the generation of electricity by Society’s generator or to provide drinking water facility or any other service, then such charges collected by the society are liable to GST.
GST on Events Organized by RWA’s
- Non-Commercial Events: If an RWA organizes non-commercial events such as festivals, picnics, or social gatherings for its members and does not charge a fee for participation or entry, GST typically does not apply. RWAs are generally considered non-commercial entities in such cases.
- Commercial Events: If the event is commercial in nature such as a paid entry event, fundraisers, or an event where external vendors are involved and fees are charged for entry or participation then GST may apply. The rate of GST depends on the nature of the event and the services provided.
Case Laws 01: M/s. Residents Welfare Association, Aundh v. Union of India (2020)
- Issue: GST on maintenance charges, including electricity bills, under Section 9 of the GST Act. Court: Pune District Court
- Facts: In this case, an RWA challenged the GST levy on maintenance charges that included charges for electricity consumption in common areas like parking lots, lifts, and security lighting. The RWA argued that these were simply pass-through charges and not an activity subject to GST.
- Ruling: The Pune District Court ruled that maintenance charges levied by RWAs are subject to GST only when they involve services that qualify as “services” under the GST Act. The court clarified that electricity charges, when billed separately as pass-through charges, do not attract GST, if the RWA is not selling electricity directly. However, if the RWA is providing an inclusive service (like electricity distribution or supply), then GST applies.
- Key Point: The GST will apply to maintenance services that include services related to common areas, but electricity charges that are passed on to residents based on actual consumption or from the utility provider are not subject to GST.
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