Category Financial

ApnaComplex
December 23, 2010

Does Your Apartment Owners Association Qualify For Stamp Duty Remission?

There are many advantages involved with staying in an apartment complex, and one major advantage is the prominent role that you can play in your apartment association. An apartment association is formed with all residents in the apartment complex as members soon as the apartment complex is registered legally.

By joining the apartment association, you can carve out definite duties and responsibilities for yourself and you can carry these out to your best extent. This can be an entirely different experience altogether, because your role in an apartment association will expose you to hitherto unexplored facets in the legal world. The recent Stamp Duty Remission announced by the government is one such example, because you’d have been unaware of this concept, if not for your position in the apartment association.

Stamp Duty Remission – Fact of the Matter

Recent concessions have been announced by the Government of Andhra Pradesh regarding a concession on the stamp duty that’s levied on apartments. The announcement lists down certain conditions, and an apartment complex that satisfies all these conditions can avail the concession offered.

But before you start off trying to find out whether your apartment complex would be eligible, you’ll need to know what stamp duty actually is. 

What is Stamp Duty?

When it comes to legal procedures, taxes are levied in many sections, including the documents used for the procedure themselves. Such tax that is levied on all legal documents is called as stamp duty. Once the stamp duty is fully paid, a stamp will impressed on the document or attached to the same. This applies to all commissions, receipts and checks too.

In the case of apartments, stamp duty is levied when an apartment (or) apartment complex is taken for proper registration. In order to register the apartment complex officially, some stamp duty needs to be paid. The payment involved varies from place to place though.

Conditions for Stamp Duty Remission

The government states many conditions when it comes to remission of stamp duty, and these conditions need to be satisfied for the same.

  • The concession is provided to flats or apartments that have a floor area that is equal to or less than 1200 square feet. Any apartments or flats that have dimensions more than this will not be considered eligible for concession.
  • The concession is only provided for residential areas, and it is not provided to residential apartments that are put to any form of commercial use.
  • The overall floor area specified is inclusive of parking space. Any apartments or houses that have dimensions of 1200 feet or below, excluding their parking space will not be considered.
  • Stamp duty remission will be provided for flats and apartments and other registered structures like apartment complexes, which have more than or equal to five tenements.
  • Independent houses and apartment complexes that have lesser than five tenements will not be considered for stamp duty remission.
  • The concession will be provided only on stamp duty, and there will be no changes in the registration charges or transfer duty.

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This article aims at collating and providing information for benefit of ApnaComplex customers and blog readers. While ApnaComplex has taken every care to ensure the information is accurate, we suggest to please use it only as a guidance for further discussion and action with help of relevant professionals. If you need professional advise on this topic and any other property related matters, please send your request through our contact us form. You may post your questions/inputs in the Comments section below and we will try and get them answered through relevant subject matter experts.

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ApnaComplex
August 29, 2010

Guide to Income Tax for Apartment Associations

Income Tax for Housing Societies

For most apartment associations, member contributions form the major chunk of their income. These contributions by members are credited to different heads by the housing association. These include Maintenance charges, Property Tax, Sinking Fund, Municipal taxes, etc. This income that the society generates is used to meet the day-to-day expenses of the society. The expenses and any amount that is left over after making payments are not subject to income tax. Because of this some members assume that housing associations are exempt from paying any kind of tax. This is not so. Apart from member contributions, a housing society may generate income from other sources as well, some of which can be taxable. As per the provisions of the Income-tax Act, Co-operative Societies are treated as an association of persons and are supposed to file the Income Tax returns if this income is in excess of Rs.20,000/.

To pay Income Tax, a Co-operative Society should get a Permanent Account Number by making an application in Form No. 49A. Since housing associations generate income to provide services to themselves rather than to generate profit, there are many exemptions that they can avail of. The deductions in respect of income are provided under Section 80P of the Income Tax Act. Each of these deductions is distinct and independent and the category of income needs to be considered to decide under which head the deduction belongs to.

Let’s take a look at some of the heads under which income is taxable and the exemptions available:

Non –Occupancy Charges

If monthly charges paid by members are not taxable, why should that paid by non-occupying members be taxable? The logic that the Income Tax department uses is simple. It levies tax on non-occupancy charge on members because the owner of the apartment / flat is paying for facilities that he/she is not enjoying. This is in contrast to residing members who are paying for facilities that they are utilizing.

Transfer fee

Whenever a member transfers his share, rights and interest in a property, the member has to pay a transfer fee to the housing society. According to the Model Bye Law, the transfer amount is to be fixed by the general body meeting. However, the amount shall not exceed Rs. 25,000. This amount is taxable under the Income Tax Act.

Rental income from advertisement hoardings

The amount earned as rent from advertisement hoardings in the society premises is fully taxable under the head Business Income / Income from other sources. However any expenses that can be directly attributable to the earning of this income can be claimed as deduction.

Rental from Cable and Mobile Towers

Similar to the revenue earned from advertisement hoardings, the rental earned from Cable and Mobile Towers is taxable under the head Income from House Property. Under this head, it is also eligible for standard deduction u/s 24 (a) @ 30 % of the rent. In case the society has borrowed capital to construct any infrastructure to support the Cable / Mobile Towers then a proportionate deduction can be claimed for interest paid on the borrowed capital.

Rental from Open Spaces/Terraces

Open spaces and terraces can be rented out to members as well as outsiders. If the area is rented out to Members then the income will not be taxable. However, if the rent has been received by non-members then the income is taxable under the head Income from House Property & will qualify for deductions as mentioned earlier.

Parking and Shop Rental Charges

Parking charges levied by members is not liable for tax as it is part of the income that is paid by members for the services used by the members. However, the amount that is earned from outsiders vehicles is liable for Income Tax.
Some societies have shops within its premises. The maintenance charges and any other income earned from these shops are taxable if it serves non-residents. But if it is only for the purpose of the residents, then any income earned from it is not taxable.

Interest on investments and Dividends

Housing societies may invest their excess funds to earn interest on it. This investment can be in Co-operative banks or any other institution. The interest that the society earns on investments made in Co-operative Banks qualifies for deduction @ 100% under section 80P (d). Other income, however, is fully taxable. Similarly dividend income received from Indian Companies under section u/s 10 (34) and Co-operative Banks under section 80P (d) are 100% deductible.

Miscellaneous Income

Sometimes, the housing society may receive an additional amount from a builder for additional floors to be built. In such a case, the income earned will be termed as short term capital gains if the society is less than three years old and the entire amount will be taxable. If the society is more than three years old then it will be treated as long term capital gains which it can invest in suitable instruments to gain tax exemption u/s 54EA/EB.

Slabs and Deductions

A Co-operative society qualifies for a general deduction of Rs. 50,000 under section 80 P (2) (c) against any business income.

The income tax slab for societies is as follows:

Income up to Rs. 10,000 10 %
Income up to Rs. 20,000 20 %
Above Rs. 20,000/- 30 %

The applicable Education and Higher Education Cess would have to be added to this.

This article aims at collating and providing a ready to use guideline for treasurers of the association for benefit of ApnaComplex customers and blog readers. While ApnaComplex has taken every care to ensure the information is accurate, we suggest to please use the information in the article as a guidance and do your own due diligence before calculating the tax. If you need professional advice on this topic and any other property related matters, please send your request through our contact us form.
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ApnaComplex
July 20, 2010

Popular methods of calculating Maintenance Charges in Apartment Complexes

As a resident of an apartment complex, you are required to pay a monthly charge for the upkeep and maintenance of your society.  This maintenance charge is usually arrived at taking into account the monthly expenses plus an additional amount that the society can save for major repairs or maintenance that will arise at a later date. Every housing society decides on a method that it believes is a fair and reasonable way of calculating the amount for each member.  While this may sound like a simple agenda, at times, it’s not so simple to carry out due to the different ways in which the amount can be calculated. Here, we present some of the popular ways in which societies calculate maintenance charges along with their respective pros and cons:

Pay per Square Feet:

This is the most common and popular way of calculating maintenance fee. In this type of calculation, a fixed rate is charged per super built up area of the apartment that you own. For example, if the fixed rate is Rs. 2 and you own a 1000 sq. ft. apartment, your maintenance charge will be Rs. 2,000 per month. In this type of arrangement, the bigger the area of the house, the higher you pay as maintenance charge. So in apartment complexes with apartments of varying sizes, you’ll have people paying different amounts per month as maintenance charge.

Pros: It is easier to calculate. This method is one of the most commonly used methods in apartment complexes.
Cons: While this method is popular, it is unfair on people owning larger houses as some of the facilities that they use like a lift, the garden, the club, security services etc. are equally shared among all members irrespective of the size of the flat.

Combined Maintenance Charges:

In this method, the maintenance amount is divided into two parts. Part 1 includes all expenses that are equally utilized by members, irrespective of the size of their apartments. This includes the cost of maintaining lifts, salaries for security and other staff, costs for stationery, property taxes of society office, conveyance, meeting charges, audit fees, legal charges, common electricity charges, etc. The other part is calculated on the basis of the area of the flat and includes items like property taxes, water charges, etc. This is also the method advocated by the Maharashtra Cooperative Societies Model Bye-Laws.

Of this amount collected, everything is an immediate outgo for the society except for the amount collected as sinking fund. This amount is used when the society needs funds to carry out major repairs or maintenance. So instead of collecting the amount from the members at one time, the society can dip into the sinking fund that has grown over the years. The bye-laws recommend collecting at least 0.25% per annum of the cost of construction of each apartment (excluding the cost of the land) as sinking fund corpus. The AGM can vote to collect a higher amount than this if required. The amount is calculated on size of the apartment. This amount remains with the society until any major repairs has to be undertaken. In case the owner sells the apartment, this money is not returned to him/her.                                       

Pros: Aims to be fair on all parties involved. The members owning a bigger apartment is not penalized based on the size of the apartment. All other expenses which are related to the size of the apartment are charged as per dimensions of the apartment.
Cons: There can be lot of differences of opinion on the items that should be charged as per size of the apartment.

Equal Maintenance Fee:

This method is favoured in apartment complexes where the size of each apartment is the same. Here, the fixed amount is arrived at after calculating the monthly expenses plus the amount to be kept aside in the sinking fund and dividing the total by the number of apartments in the society. As costs increase, this amount gets revised in the Annual General Meeting. For complexes where apartments are of different sizes, this method will be unfair and is usually not accepted by the members.

 Pros: Easy to implement in societies with same-sized apartments.
Cons: Unfair to smaller apartment owners in societies with different-sized apartments. The greater the difference in size of the apartments, the higher will be the discrepancies in the maintenance charges between the members.

In all methods, it is recommended that the maintenance amount calculation be revisited at least once in six months based on the actual expenses incurred in the past 6 months and the contingency amount that the association would like to maintain for any exigencies.

While these are some popular ways of calculating the maintenance charge, a residential society can arrive at any system that is considered fair and acceptable to all members of the society. If there is any doubt, you can refer to the model bye-laws and decide on the best way to calculate the maintenance charge in your Annual General Body Meeting.

Update: You can also refer to this article – How to Calculate Maintenance Charges for your Apartment Association?

This article aims at collating and providing information on maintenance charge calculations for residential complexes for benefit of ApnaComplex customers and readers. While ApnaComplex has taken every care to ensure the information is accurate, we suggest to please use the information in the article and the template provided only as a guidance for further discussion and action with help of relevant professionals. If you need professional advise on this topic and any other property related matters, please send your request through our contact us form. You may post your questions/inputs in the Comments section below and we will try and get them answered through relevant subject matter experts.
26 Comments on Popular methods of calculating Maintenance Charges in Apartment Complexes InApartment Management Articles Bye Laws Financial Legal Maintenance Tips