GST Applies to Voluntary Payment by Exiting Cooperative Housing Society Member

GST Applies to Voluntary Payment by Exiting Cooperative Housing Society Member

The Maharashtra bench of the Appellate Authority for Advance Rulings denied a Cooperative Housing Society (CHS) on Pedder Road's GST appeal (AAAR). Goods and Services Tax (GST) will apply to "voluntary" contributions made by a departing member, as reported by TOI on 8 June 2022.

In other words, the departing member will be responsible for the GST cost that the CHS will collect and deposit. Given that numerous CHSs collect voluntary contributions totaling several lakhs, the cost of transferring a residence can increase.

It is not uncommon for Co-operative Housing Societies in Bombay to charge transfer fees on the sale of a flat in excess of the Rs 25,000 stipulated in the model regulations. While some societies desire a higher transfer fee explicitly, others embrace an additional payment that is set aside for future use, such as for future significant repairs. The transfer fee that is directly related to services provided to the departing member in connection with the transfer of a flat is subject to 18% GST. Nonetheless, some CHSs maintain that no GST is applicable to voluntary contributions because there is no connection to the supply of services to the departing member.

It should be noted that only CHSs with an annual turnover in excess of Rs 20 lakh (including transfer fees) are required to register for GST and comply with tax obligations. However, due to the substantial amount of voluntary payments received, the majority of CHSs in Mumbai are required to register and comply with the GST. In this instance, the AAR determined that an outgoing member had contributed Rs 17,7 lakh to Monalisa CHS, inclusive of GST.

In its accounts, the housing society reflected a net amount of Rs 15 lakh under the heading "main rehabilitation fund."

The remaining Rs 2,75,000 represented the GST component. In its 2022 ruling, the AAR also concluded that an outgoing member may be required to make a gratuitous/voluntary payment. The accounting entry indicates that the contribution is merely a prepayment for services that society members will receive in the future.

The particular CHS in Peddar Road rebutted these arguments before the appellate panel, which consisted of Rajeev Kumar Mital and D K Srinivas.

It was emphasised that the payment is optional and that a member may request the transfer of his or her property without making such a payment. Transferring the money to the repair fund is merely an accounting transaction.

Moreover, future repairs will not benefit the departing member; therefore, there is no taxable service provided to him. However, the appellate body upheld the AAR's earlier ruling.