Is contribution towards sinking fund for the Cooperative Housing Society liable to GST?
Why sinking fund is collected by the Co-operative Housing Society?
- The creation of the sinking fund is a mandatory requirement under the Bye-laws of the Cooperative Housing Societies/Resident Welfare Associations.
- It is an amount set aside in the nature of a deposit for meeting an unplanned or planned future capital outlay. It will be utilized only when the event requiring its use occurs.
- A separate account for the sinking fund shall be maintained and would be used only for the purpose for which such fund is collected and not towards the regular maintenance activity.
- The amount so collected will be utilized towards unplanned or planned capital outlay in the future for the supply of services meant for its members.
For eg. : – Creation of Sinking Fund as per Bye-law no. 13(c) of Model Bye-Laws of Cooperative Housing Society, Maharashtra
|The Society shall create and establish the sinking fund by collecting contributions from its Members: The Sinking Fund at the rate decided at the meeting of the general body, subject to the minimum of 0.25 percent per annum of the construction cost of each flat incurred during the construction of the building of the Society and certified by the Architect, excluding the proportionate cost of the land. “|
Note: There is no supply of goods or services for the consideration paid towards the sinking fund contribution at the time of collection from the members. It is just the transaction of money that is collected and set aside as a deposit for future use and hence the collection of the sinking fund is kept outside the definition of “goods” or “services”.
Whether the contribution towards sinking fund from members liable to GST?
Contribution towards the sinking fund is the amount collected towards the future supply of service to its members and is kept as a deposit. And hence the sinking fund deposit will be utilized only for the payment of planned or unplanned capital outlay as and when the actual services are supplied to its members.
There are two aspects involved in the sinking fund
- One is collection as a deposit for the future supply of service and,
- Another is the utilization of the deposit so collected for the supply of service.
There are two different views
One view >> As per FAQs issued by Govt. of India on 5th September 2017
|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/Co-operative Society for the supply of services meant for its members.|
Applicability of GST on the contribution towards sinking fund as per FAQs issued by Govt.
At the time of collection – It will be liable to GST.
At the time of utilization – It will not be liable to GST.
Another view >>As per Advance Ruling pronounced by AAR, Karnataka (Applicant- Prestige South Ridge Apartment Owners Association)
Based on the discussion and findings and the facts presented to AAR, the advance ruling was pronounced by the AAR. Let’s refer the definition of “Consideration” to understand whether contribution towards sinking fund is consideration or not as per GST.
|As per section 2(31) of the CGST Act, 2017, “Consideration” in relation to the supply of goods or services or both includes –
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
(b) the monetary value of any act or forbearance, in respect of in response to, or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:
Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;”
Based on the above definition of “consideration”,
- The amounts collected towards the deposit of sinking fund do not form part of the consideration towards the supply of services at the time of collection.
- But when the amounts collected towards the deposit of sinking fund are utilized for providing the service will form part of the consideration at the time of actual supply of service.
Applicability of GST on the contribution towards sinking fund as per Advance Ruling
At the time of collection – It will not be liable to GST as a collection of the contribution does not form part of the consideration.
At the time of utilization – It will be liable to GST as utilization of contribution will form part of the consideration.
Different Interpretation on contribution towards sinking fund & its tax applicability
Based on AAR, Karnataka
(Applicant: Prestige South Ridge Apartment Owners Association)
Based on FAQs issued by CBIC
Dated: 17th September 2019
|Dated: 5th September 2017|
Contribution to the sinking fund will not attract GST.
|Contribution to the sinking fund will attract GST.|
|Utilization of the sinking fund will attract GST.||
Not referred here
(As it is taxed while collection won’t be taxed at the time of utilization)
Taxing at the time of utilization is a non-conservative approach.
|Taxing at the time of collection is a conservative approach.|
|An advance ruling is binding only on the applicant and officer||
FAQs issued by Govt. will be binding on everyone
The benefits of sinking fund contributions made by members today may not be necessarily be availed by the same members in the future. It is a very subjective matter whether contribution towards sinking fund shall be charged to tax at the time of collection or at the time of utilization. If we look at it from the practical point of view, taxing it at the time of collection makes it a lot easier and convenient than taxing it at the time of utilization. As bifurcating expenses from regular maintenance expenses and expenses for capital outlay from the sinking fund will be a tedious task. One more thing advance ruling is not binding on everyone whereas FAQs issued by Government will be binding to everyone.
⊗ Why did the AAR not take the reference of the FAQs issued in 2017 and give the same answer to the applicant?
⊗ Whether the contribution towards the sinking fund be mandatorily charged to tax or it should be included in the Rs. 7,500/- exemption limit?