Archives January 2014

Should Service Tax be collected from Members of Apartment Association?

Apartment Associations are liable to pay service tax to Government of India when one or more members of the association has contributed more than Rs. 5,000/- per month to the association (refer this post for clarity). As per the law, the liability is on the Society to remit service tax – irrespective of the society collecting the same from members.

The society has couple of options to take to pay the service tax to the government:

Option-1: Service Tax is a destination based tax – means the service tax can passed to the members in question directly, collected and then paid. In societies where the contribution is same by all members or in societies where every member is contributing more than Rs. 5,000/- there is usually no issue in collecting the same from all members and remitting the same to government. However, in quite a few apartment complexes, there is a situation where there are only few members who cross the Rs. 5,000/- per month limit. This means that these few members will have to pay significantly higher charges than the rest and it can create disharmony in the society. There will be pressure on the executive committee to review the total charges collected to keep it below Rs. 5,000/- so that few members do not end up paying significantly high rates.

Option-2: Do not to collect the service tax from the members – but compute the service tax to be remitted to Government on cum-tax basis and remit the same. For example, if there are 10 members who are paying Rs. 6,000/- per month – then the service tax to be paid can be calculated on Rs. 60,000 (total contribution by service tax eligible members). The tax to be paid would be 60000 * 12.36/112.36 = 6600/-. This is a much preferred option for cases where only few flats are to pay service tax. The society can remit this payment to Govt. Also, since society can claim cenvat credit on the service tax to be paid this approach would ensure there is no additional burden on few members of the society.


Jan 2014 Circular on Service Tax on Apartment Associations

A new circular has been released by Service Tax department on 10th Jan 2014 attempting to clarify the confusion surrounding applicability of service tax on dues collected from Members.

Based on the past circulars of March 2012 and June 2012, up to Rs. 5,000/- per month per member of collection is exempted from service tax. Even though there are varied opinions on interpretation of the same, few societies where the collection was above Rs. 5,000/- were only collecting service tax on the additional amount.

The latest circular clarifies this particular aspect – if a member is paying more than Rs. 5,000/- per month – service tax needs to be collected on entire amount and not just on the amount exceeding Rs. 5,000/-.. For example, if some one is paying Rs.5,100 the society is now liable for service tax of 5,100*12.36% = Rs. 630/-.

Couple of other clarifications as well which will reduce some confusion:
Service tax is only applicable on the amount collected from members whose contribution is more than 5,000/- per month per flat. If in a society there are members who are contributing less – the amount collected from them will not be liable for service tax.

Service Tax is not applicable where money is collected by society from members to pay to a third party purely as a convenience – like paying water bills issued to members in bulk.

Read below the extract from the circular that attempts to clarify various doubts:

Sl. No.

Doubt

Clarification

1.

(i) 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
sump, health and fitness centre, swimming pool, payment of electricity Bill
for the common area and lift, etc.]. Is service tax leviable?

 

(ii) If the contribution of a member/s of a
RWA exceeds five thousand rupees per month, how should the service tax
liability be calculated?

Exemption at Sl. No. 28 (c) in notification
No. 25/2012-ST 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.

2.

(i) Is threshold exemption under
notification No. 33/2012-ST available to RWA?

 

(ii) Does ‘aggregate value’ for the
pusrpose of threshold exemption, include the value of exempt service?

 

Threshold exemption available under notification
No. 33/2012-ST is applicable to a RWA, subject to conditions prescribed in
the notification. Under this notification, taxable services of aggregate
value not exceeding ten lakh rupees in any financial year is exempted from
service tax. As per the definition of ‘aggregate value’ provided in
Explanation B of the notification, aggregate value does not include the value
of services which are exempt from service tax.

3.

If a RWA provides certain services such as
payment of electricity or water bill issued by third person, in the name of
its members, acting as a ‘pure agent’ of its members, is exclusion from value
of taxable service available for the purposes of exemptions provided in
Notification 33/2012-ST or 25/2012-ST ?

In Rule 5(2) of the Service Tax
(Determination of Value) Rules, 2006, it is provided that expenditure or
costs incurred by a service provider as a pure agent of the recipient of
service shall be excluded from the value of taxable service, subject to the
conditions specified in the Rule.

For illustration, where the payment for an
electricity bill raised by an electricity transmission or distribution
utility in the name of the owner of an apartment in respect of electricity
consumed thereon, is collected and paid by the RWA to the utility, without
charging any commission or a consideration by any other name, the RWA is
acting as a pure agent and hence exclusion from the value of taxable service
would be available. However, in the case of electricity bills issued in the
name of RWA, in respect of electricity consumed for common use of lifts,
motor pumps for water supply, lights in common area, etc., since there is no
agent involved in these transactions, the exclusion from the value of taxable
service would not be available.

4.

Is CENVAT credit available to RWA for
payment of service tax?

RWA may avail cenvat credit and use the
same for payment of service tax, in accordance with the Cenvat Credit Rules.

Next Steps

We strongly recommend you reach out to your auditor for advise. Especially, if you have been collecting service tax from members only on the incremental amount – reach out to your auditor on the impact of this circular for past collections.

Even though adding Service Tax is relatively straight forward in ApnaComplex – do reach out to our ever helpful support team if your society is charging service tax and needs assistance.


How The Falling Rupee Will Affect The Real Estate Sector

The depreciation of the Indian rupee might be getting all the bad press lately, but the recent fall of the rupee does have some happy takers. The Indian real estate market which has been sluggish following the Lehman-collapse period, is all set to see a boost with more and more nonresident Indians (NRIs) investing in the Indian real estate market. Here is quick look at how the falling rupee is likely to affect different players in the real estate sector.

Impact On Developers

Rupee depreciation signifies escalation of cost of raw materials and services, transportation, and other expenses involved in construction. This in-turn raises the overall cost and time index of a project,and often results in unwanted delays. Rupee depreciation also affects import of construction equipment and technologies. The biggest blow comes in the form of Cash Reserve Ratio (CRR) by the Reserve Bank of India (RBI). Any change in CRR affects the lending rate of banks, which in-turn negatively impacts the funding of new and existing projects.

Impact On Indian Buyers

Rupee depreciation increases the price of household objects. The added burden discourages buyers from investing in real estate at the moment. Further, with interest rates escalating, buyers would prefer to stay away from higher EMIs. On the bright side, in order to attract more buyers, the real estate market will see a lot of developers offering easy payment schemes, discounts on pre-bookings, and free installments of home appliances.

More Savings For NRIs

With the dollar touching Rs 60, the grass sure looks greener on the Indian side for a lot of nonresident Indians. Experts say, a flat in Mumbai costing Rs 5.5 crore ($1 million) in May will now cost around $900,000 for an NRI investor. The fall of the rupee has made expensive properties a little more affordable for the average NRI.

While there is substantial saving for NRI buyers, most NRIs might want to wait for the rupee to depreciate further. Moreover, there are logistical constrains including identifying the right property, negotiating a deal, repatriating large sums of money in outright purchases, and completion of all necessary documentation and formalities during the transaction lifecycle.

Early NRI Buyers To Gain More

The depreciation of the rupee may largely benefit those NRI buyers who are already in the process of finalizing an existing transaction, where they have still not converted their foreign exchange into rupees to pay for their purchase. However, there is no denying the fact that with nonresident Indians amongst the top five investor communities in India, the slump of the Indian rupee will initiate a cycle that will see a subtle, if not immediate, growth in the real estate sector in the next couple of months, provided the dollar continues to remain strong against the Indian rupee!


Get your Society on ApnaComplex – Today!
ApnaComplex is India’s most comprehensive web based housing society accounting, management and communication software. It is designed to make the life of residents and owners a lot better by bringing in more transparency and accountability in managing a housing society. Check out the features of ApnaComplex and sign up your society today to get the benefits! We offer a free 30-day trial as well so that you can try before you buy!


Apartment Complex Events – Tips for Planning Pongal Celebrations

In the rush and stress of urban life, we often forget about the ancient customs and traditions associated with our festivals. In fact, one of the common complaints of parents living in apartment complexes in cities is that their children are unaware of their roots and culture. Yet another complaint often heard is that city living has cut the links that develop between members of a community.

Have a communal Pongal celebration in the apartment complex is a good way to solve these problems. Children get to know more about their culture even as their parents learn to interact and develop friendships with their neighbors.

Tips for Planning Pongal Celebrations


(i) Pongal is a four day festival. While it might not be possible to evoke a good response to an event stretching out over four days – give the hectic pace of urban life – plan to have at least a two day celebrations to create a true impact.

(ii) The first day of Pongal, known as Bogi, is normally marked by a pooja and a bonfire. The bonfire in the evening can be made into a community event.

(iii) Make arrangements for the bonfire well in advance. Keep one person in charge of the entire event. Designate a safe area for the bonfire, which is away from parked cars and other fire traps. Involve children in the activity of building the bonfire. Also ensure that safety precautions are in place. Check that fire extinguishers are in working order.

(iv) On the second day of Pongal celebrations – the Surya Pongal – arrange for women in the apartment complex to draw kolams. Get children involved in the activity, so that they learn about this tradition. Some apartment complexes even arrange group kolam competitions.

Pongal Celebrations

(v) Cooking the pongal can also be an event where all the residents in the complex participate. This again adds to the excitement and fervor of the occasion.

(vi) A community lunch can be organized. The residents of the apartment complex should be encouraged to bring in one dish each for the lunch. This will again involve a lot of planning and interaction – which is the point of holding Pongal celebrations in your apartment complex!

(vii) Have special events for the children. A quiz competition regarding Pongal traditions, a exhibition of Pongal Panai pots painted and decorated by the residents and a cultural program are just some of the ways to get children involved more actively in the celebration. These activities will also build up a special atmosphere in the apartment complex and add to the sense of festivity.

(viii) The success of the Pongal celebrations in your apartment complex will depend on the degree of participation. It is therefore essential that the event is well planned taking everybody’s suggestions and ideas. Discussions should be held and responsibilities assigned to make sure that the event goes off smoothly.

Group celebrations can reduce the feeling of alienation that people living in apartment houses often experience – and Pongal is definitely a good reason to celebrate!


Get your Society on ApnaComplex – Today!

ApnaComplex is India’s most comprehensive web based housing society accounting, management and communication software. It is designed to make the life of residents and owners a lot better by bringing in more transparency and accountability in managing a housing society. Check out the features of ApnaComplex and sign up your society today to get the benefits! We offer a free 30-day trail as well so that you can try before you buy!


Housing Society Safety Measures During the Kite Festival Celebrations

Organizing kite festival celebrations in your housing society can be a lot of fun. However, mishaps and loss of lives during the kite flying festival have often been reported in the press. It therefore makes sense to draw up a list of safety precautions and ensure that these are strictly followed during the kite festival celebrations at your apartment complex.

Safety Measures During Kite Festival Celebrations


(i) Children love to fly kites from terraces and roof tops. While this may be exciting, the element of danger increases. There have been several reported instances when people flying kites from terraces and roof tops have lost their balance and toppled over. So before the festival gets off to a start, draw up some ground rules. One option is to ban flying kites from roof tops and terraces. The second option is to appoint two or three people to patrol the roof tops, especially the areas where children are flying kites. They can keep an eye to ensure that the kids do not venture too close to the edge of the terraces.

(ii) The second danger during the kite flying festival comes from the manja that is used. Every often, the manja is manufactured using plastic and ground glass in order to give it a cutting edge. Sadly enough, these manjas have been responsible for killing people as they are sharp enough even to slash throats. Given the danger involved, specify the kind of manjas that can be used during the kite festival. Circulate the specifications well in advance so that people can buy the right kind of manja.

Kite Festival

(i) One of the problems with the kite festival is that it causes havoc among birds. Several birds fly right into the path of the kites and are severely injured. One way to avoid this is to adjust the timings of the kite flying festival. Make sure that residents of the apartment complex do not fly kites early in the morning or at dusk as this is the time when birds are very active. Again, a bit of advance planning and sufficient notice will ensure the co-operation of all the residents.

(ii) The kite festival may see the influx of visitors to the apartment complex as residents may invite their friends and relatives. Make sure that all of them are bonafide guests and not trouble makers trying to sneak in. Alert the security and instruct them to get verification from the residents concerned before allowing any strangers into the complex. Make alternate parking arrangements to ensure that the visitors’ cars do not create a traffic jam in the locality.

(iii) Make arrangements to deal with any medical emergencies that may arise. Have a doctor on call and keep one vehicle and driver on standby at all times.

(iv) The end of the kite flying festival can leave your apartment complex littered with broken and torn kites. These are not just unseemly but can also be a fire hazard. Make a plan regarding garbage clearance and implement it as soon as the festivities are over.

With a few basic precautions, you can organize a safe kite festival in your apartment complex.


Get your Society on ApnaComplex – Today!

ApnaComplex is India’s most comprehensive web based housing society accounting, management and communication software. It is designed to make the life of residents and owners a lot better by bringing in more transparency and accountability in managing a housing society. Check out the features of ApnaComplex and sign up your society today to get the benefits! We offer a free 30-day trail as well so that you can try before you buy!