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.