SERVICE TAX ON MEMBER’S CONTRIBUTIONS
Circular No. 175/01/2014-ST dated 10-Jan-2014, issued by Under-Secretary to Government of India, Ministry of Finance, contains following points:
(Note: RWA = Resident Welfare Association)
- In a residential complex, monthly contribution collected from members is used by the RWA for the purpose of making payments to the third parties in respect of commonly used services or goods [Example: for providing security service for the residential complex, maintenance or upkeep of common area and common facilities like lift, water pump, health and fitness centre, swimming pool, payment of electricity Bill for the common area and lift, etc.]
- Exemption is provided specifically with reference to service provided by an unincorporated body or a non-profit entity registered under any law for the time being in force such as RWAs, to its own members. However, a monetary ceiling has been prescribed for this exemption, calculated in the form of five thousand rupees per month per member contribution to the RWA, for sourcing of goods or services from third person for the common use of its members.
- 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.
- This tax has been in effect since 2005. At that time, exemption ceiling was Rs. 3000.
This circular mentions only RWAs i.e. our CO-OPERATIVE HOUSING SOCIETIES. However the same principle is also applied to club memberships, membership fees of associations and chambers of commerce, etc.
Such service tax collection has been struck down by service tax tribunals and high courts under the principle that where every member is a share-holder and every share-holder is a member, there is no provision of service from one entity to another.
Most of us are un-able or un-willing to fight it out in court. However, the least we can do is to ask for a refund after paying the tax.
M. B. Damania.