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Formation of associations or unions is a fundamental right guaranteed by the Constitution to its citizens. Many clubs or associations are formed either for recreation, philanthropy or other purpose. Clubs or associations may be registered as a society, trust, company or it may even be an unregistered club/association. Taxing the activities of the clubs or associations has engaged the fertile imagination and attention of tax gatherers for a long time be it sale of goods or provision of services or income earned.

In the case of incorporated clubs, it acts as an agent of its members investing its own money for preparing things for consumption of the principal and later recouping himself of the expenses incurred.[1] Mere registration under a statute may not confer the status of incorporated body even if it could acquire property and entails certain other statutory privileges.


Resident welfare association (RWA) is an association that represents the interest of residents of a specific urban or sub-urban locality. As a collective body, RWA would be supplying certain services to its members like collecting statutory dues from its members and remitting to statutory authorities, maintenance of the building, security etc. 

The scope of supply as per Section 7 of CGST Act, 2017 includes activities mentioned in Schedule II. Entry 7 of the Schedule II provides that supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration would be considered as a supply of goods.

Further, the definition of “business” in s 2(17) of CGST Act includes the provision by a club, association, society, or any such body (for a subscription or any other consideration) of facilities or benefits to its members.

RWA’s could examine the following options under GST for the monthly collections made from the members.

  • Mutuality concept
  • Reimbursement of expenses
  • Availing exemption of Rs.7500/- per month from 25th January 2018.

Option 1: Principle of mutuality

The principle of mutuality is based on the theory that a person cannot make profit out of himself and similarly, a mutual association cannot make profit out of itself. The principle, however, does not prevent such an association from doing business with some of its members because, in that case, the association must be deemed to do the business not by itself but with others who are different entities.

It is also well settled that, in order that the principle of mutuality should come into play, there must be an identity between the contributors to the fund and the participators in the fund. The essence of mutuality lies in the return of what one has contributed to the common fund. It is essential that all contributors to the common fund must be entitled to participate in the surplus and all participators must be contributors to the common fund and not only that all participators must be entitled to contribute.

There is an absence of basic ingredient of existence of two parties, which is supply from one person to another. Under GST, the supply of goods by an association to its members would be deemed to be a  supply (refer cl 7 of Schedule II). This would be in accordance with Art 366(29A)(e) of the Constitution. Interestingly, Schedule II does not speak about supply of service ( only refers to goods) to members by a club or association.

In Matunga Gymkhana Tahnee Heights Co-op Hou Soc Ltd 2015-TIOL-108-CESTAT-MUM, CESTAT, relying on Ranchi Club and Sports Club of Gujarat vs. UOI 2013-TIOL-528-HC-AHM-ST held services to members of club or cooperative housing society is not service by one to another not chargeable to service tax. Both the cases relied upon are presently pending before Supreme Court where the department has filed appeal. These decisions are under earlier service tax law and mutuality might need to be judicially tested and it might take many years [8-9 years] for final clarity to emerge under GST law. However, relying on the mutuality concept could be risky under GST as there is no precedent settled case as on date.

Option 2: Reimbursement of expenses: Discharging GST on the gross revenues less the expenses incurred as a pure agent for sourcing of goods, sinking fund expenses for specific assets replacement– lifts & services [such as security, lift maintenance] provided pure agent conditions should be satisfied.

The exclusion of expenses incurred as a pure agent could be claimed only when the recoveries made are based on an actual consumption and not when the over all recoveries are based on a presumptive basis such as recovery based on floor area of flats rather than for each component of reimbursement claimed. The balance amount would be liable to GST, subject to threshold limit of Rs. 20 Lakhs. Proper documentation to prove that the conditions have been met would avoid disputes and demands.

Option 3: Availing Rs.7500/- per month per member exemption:  There is an unconditional exemption given in notification no. 12/2017-CGST(Rate) vide so no. 77 which exempts the service by an unincorporated body or a non-profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution

  1. As a trade union
  2. For the provision of carrying out any activity which is exempt from the levy of GST; or
  3. Up to an amount of Rs. 7,500/- 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 residential complex.

The exemption was upto Rs. 5000 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 residential complex from 1.7.2017 to 25.1.2018.

Note: When there is an exemption under GST, it is mandatory to claim it and there is no option to pay GST on the gross amount collected. It could lead to denial of input tax credits claimed on the reasoning that for exempted services ITC is not available.

GST on the supplies made to members which are specifically exempted vide notification: RWA could exclude in computing Rs. 7500 limit per month per member, the supplies which are collected from each member specifically. This could be excluded from the value of the supply citing pure agent of the members which would be supported by the third-party bills addressed to members. Eg: water metered and billed to each member, citing it is goods and not charge GST as it is an exempt supply. This may not be included in the exemption limit of Rs 7500 per month per member.

Clarification issued vide circular in the erstwhile ST regime: Circular no. 175/01/2014-ST clarified that if the contribution exceeds Rs.5,000/- per month per member the entire contribution is liable to tax and the assessee cannot avail the exemption upto Rs 5000. However, it is to be noted that the said circular was issued under the erstwhile tax regime and was not valid as it was not in line with the service tax law. It would not have impact under the GST law. Further, it was held in the Supreme Court in case of Minwool Rock Fibres Ltd [(2012) 278 ELT 581 (SC)] it was held that circulars / instructions issued by CBE&C not binding on Assessee, Quasi Judicial authorities and courts. Thereby, the said clarification issued by the CBE&C vide circular may not be applicable under GST regime and exemption upto Rs. 7500/- per member per month may be availed.

Joint ownership: The exemption of Rs. 7,500/- is available per member per month. Apartment held by 2 or more persons would normally be as one member in the RSWA and therefore total exemption would be restricted to Rs.7,500/-

Multiple ownership: When each owner of multiple flats is counted as one member in the byelaws of an RWA regardless of number of apartments held by him, exemption could be claimed to the extent of Rs. 7,500 for each such member per month.

Input tax Credit: RWA’s could avail the ITC only to the extent proportionate to the taxable supplies. Thereby, to the extent of the exempt supplies of Rs. 7500 per month per member, ITC has to be reversed by the RWA.

Classification: The services provided by the RWA to its members are covered in sub-Heading 9995 98 - services provided by homeowners' associations and tenants' associations.

Rate of tax: RWA’s would levy and collect GST at the rate of 18%. GST at the rate of 18% would be levied by RWA’s on the amount collected which is in excess of Rs. 7500 per month per member.

Issues and solutions:

Q1. Whether GST has to be collected from all the members?

GST has to be collected from members whose monthly maintenance charges exceed Rs 7500 per member per month.

Q2. Whether GST has to be collected on the entire amount or on the amount which is in excess of Rs 7500?

GST has to be collected only on the amount exceeding Rs 7500 per member per month and not on the entire maintenance charges collected.

Q3. Whether the exemption of Rs 7500/- per month per member is mandatory to claim?

Yes, when there is an exemption provided under GST, it is mandatory to claim and there is no option to pay GST on the gross amount collected from members.

Q4. Whether the sinking fund/corpus fund would be subject to GST?

Where the said funds are collected as deposit ( example refundable), GST would not be applicable. When such fund is collected as an advance for future contingencies (part of future maintenance), then liable to GST subject to Rs. 7500/- pm per member.

Q5. Whether the exemption is applicable only if the maintenance activity is not outsourced to third party service provider?

Where third option is adopted, the exemption is applicable only to the extent of contribution of Rs. 7500/- pm per member for sourcing of goods or services from a third person for the common use of its members. In short, exemption is applicable to extent of outsourced goods/services provided by third person for common use of members of assn.

Q6. Whether the input tax credit could be taken for the payment of GST?

When RWA opts to pay GST on net revenues after claiming exemption, then RWA would be entitled to take eligible ITC of GST paid to third parties which would be proportionate to taxable supplies.

Q7. Whether interest charges on maintenance arrears is liable for GST?

This could be taxable to GST in absence of exemption/exclusion of the same. The exemption of Rs.7,500/- per member per month is not available as these receipts are not against common use of its members, but for specific services to its members.

Q8. Whether association could take deposits from its residents and expense them?

When amount is a deposit, then it is not taxable to GST until time that it is appropriated towards the taxable supply. Where the deposit is appropriated towards taxable supply, GST would be levied. However it could be disputed that it is an advance maintenance.

Q9. Whether funds collected along with the maintenance charges for the purpose of celebrating the festivals/ programmes be liable to GST?

The goods/ service used for celebrating the festivals / programmes in RWA is in the nature of sourcing of goods or services from a third person for the common use of the members. The charges collected for celebrating the festivals / programmes though not part of the membership charges, would be exempt subject to Rs 7,500/- per month per member. Where the amount exceeds Rs 7500, RWA is liable to pay GST.

Q10. Whether GST is liable on membership fees received by RWA?

The membership fee is received by the non-member for becoming the member of RWA enabling one to get services. Hence membership fees collected from RWA is leviable to GST.

Q11. Whether water and electricity charges collected from the members are liable to GST?

Water and electricity charges collected from members would subject to GST as under:

  • Specific use of the members: The exemption of Rs. 7500/- per month per member is only for commonly procured goods and services such as water and electricity. Where, the water & electricity charges are collected and paid based on the metered usage of the members to the third-party vendors, by RWA, such charges could be excluded from the value of the supplies of RWA citing pure agent exemption, where all the conditions of pure agent are satisfied.
  • Common use: Where water and electricity charges are collected from the members for the common use, it would be included in the exemption limit of Rs.7500/- per member per month.

Q 12. How can one raise the bill for residents who have exemption and those that do not have exemption?

A.   The expenses to be booked on gross basis and the ITC recorded separately on monthly basis. The sft rate to be determined taking into consideration total cost without deduction for ITC. The members who are below Rs.7,500/-  are not eligible for any ITC. The bill would be the square feet rate multiplied by the square feet of the apartment. GST would not be changed or ITC taken for them.

The one who claim the exemption upto Rs.7,500/- are partially eligible for the ITC. The ITC available would be in terms of Rule 42 formulae. Broadly this rule enables proportionate ITC[ taxable / total] .  The total ITC available so arrived can be prorated to the total GST paid. The bill for the excess beyond 7,500/- would be charged to GST @18% and from that the proportionate ITC would be deducted.  

This article is based on a chapter on Special Transactions in Compendium of Issues and solutions –GST book to be published by CCH Walter Kluwer in March 2019.

[1] Joint Commercial Tax Officer v Young Men’s Indian Association (1970) (26) STC 241 (SC).


Published by

Madhukar N Hiregange
(Chartered Accountant)
Category GST   Report

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