Service Tax on Resident Welfare Association
Resident Welfare Associations (RWA) are associations where membership is restricted to owners in the residential complex only. RWAs provide various services to their members such as maintenance of common area, repairs, beautification, facilitating payments to security guards, sweepers etc. For this purpose, each member is required to make monthly contribution of specified amount. Service tax on ‘club or association service’ which covers Resident Welfare Association (RWA) was introduced with effect from 16.06.2005, vide section 65(105)(zzze) read with section 65(25a)[(25a) and later renumbered as (25aa)].
Under the negative list approach, with effect from 1st July, 2012, Sl. No. 28(c) of notification No.25/2012-ST provides for exemption to service by a RWA to its own members by way of reimbursement of charges or share of contribution up to five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members.
Para 7.11.8 of Service Tax Education Guide dated 20.06.2012 issued by CBEC provides that where RWA is working as a pure agent of its members for sourcing of goods or services from a third person, amount collected by RWA from its members may be excluded from the value of taxable service in terms of Rule 5(2) Of Service Tax (Determination of Value) Rules, 2006 subject to compliance with the specified conditions.
1. The contribution is collected on basis of floor area of each flat by RWA and therefore contribution from a few members may exceed Rs. 5000 per month but that of the other members is below Rs. 5000. Will all the members be ineligible to claim exemption? To what extent exemption will be available?
CBEC, vide circular no 175/01/2014-ST dated 10.01.2014, has clarified that “If per month per member contribution of any or some members of a RWA exceeds five thousand rupees, the entire contribution of such members whose per month contribution exceeds five thousand rupees would be ineligible for the exemption under the said notification. Service tax would then be leviable on the aggregate amount of monthly contribution of such members”
Therefore, contribution of only such members whose per month contribution exceeds five thousand rupees would be ineligible for the exemption under the said notification. However, the circular clarifies that in case contribution of member per month exceeds Rs 5,000 then such entire contribution would be taxable whereas Sl. No 28 (c) of the mega exemption notification reads as “….
up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex.”
The views of CBEC appears to be correct and if contribution exceeds Rs. 5000/- from a member in a particular month, then entire contribution shall be taxable.
2. A person is holding more than one flat, and although his per flat per month contribution is below Rs. 5000, but his total contribution for all flats exceeds Rs. 5000 per month. Whether the term ‘per member’ should refer to per person or per flat held?
This issue is arguable. However, the spirit behind the exemption seems to exempt contribution upto Rs. 5000/- towards each flat and not each member. But to remain on safer side, payment of service tax in this case is advisable.
3. Some other charges may be received from any member on account of other services and facilities such as renting of community hall. Whether these should be clubbed to examine eligibility of exemption of Rs. 5000/- available to RWA?
As per Mega Exemption notification No.25/2012-ST, exemption of Rs. 5000/- per month per member is available for “sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex” Thus, various considerations received from any member on account of other services and facilities provided are to be clubbed to examine eligibility of exemption of Rs. 5000/- available to RWA, if the service is sourced from third party and for the common use of its members. Beside this, if any other charges are collected by the RWA from its members to provide any service which are not sourced from third party (like renting of community hall of the complex, Parking charges etc), then such service shall be taxable under service tax after availing exemption as small service provider under Notification No. 33/2012-ST dated 20.06.2012.