Service tax on contributions received by RWA

Following is the summary of the clarifications issued by the CBEC on applicability of service tax on contributions received by Residential Welfare Associations (RWA) from its members. 

• Service tax exemption is available on monthly contributions received from members not exceeding an amount of Rs 5,000 per month per member; 

• For members contributing more than Rs 5,000 per month per member, the entire contribution of such members 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; 

• Value of Taxable Services would not include electricity charges and water charges paid by association and reimbursement obtained from the members provided 
• Bills are issued in the name of the owner of the apartment; and
• No commission or consideration is collected by the association.
•  Value of Taxable Services would however include amounts collected towards electricity charges of common area charges where invoice is issued in the name of RWA since there is no principal agent relationship. 

Our Comments

• Sl No 28 of the Notification 25/2012 dated June 20, 2012 exempts reimbursement of charges / share of contribution "upto" Rs 5,000 per month per member for sourcing of goods or services from a third person for the common use of its members.  The word "upto" is generally understood to mean a threshold limit and tax needs to be paid only on such amount which is in excess of Rs 5,000.  However, the circular clarifies that in case contribution of member per month exceeds Rs 5,000 then such entire contribution would be taxable;
• Further, if due to certain renovation work in a particular month, the monthly contribution of the members exceeds Rs 5,000 in that particular month but remains below Rs 5,000 in all the other months, then the term "entire contribution of such members whose per month contribution exceeds Rs 5,000" could create issues and the departmental authorities could demand service tax on the entire contribution received from the member during the year.
• The clarification on utility bills could lead to a conclusion that utility bills not in the name of the apartment owners may be liable to service tax though the RWA collects the actual cost without any mark-up.  This clarification may not be so relevant wrt residential projects wherein electricity Meters are generally registered in the name of the owner.  However, wrt Commercial Projects where the electricity bills are not in the name of the tenants, service tax could be demanded on such electricity bills. 

The Circular could be downloaded by following this link