We all pay maintenance for flats that have been offered for possession. By default, the maintenance charges invite service tax to the tune of 12.36% which sounds unfair, isn’t it? Is there a way to save this service tax? Yes, there is. A simple one and that is to have RWA take care of maintenance. Over that, you need to ensure that maintenance charges are reasonable, reasonable enough so that your maintenance charges per month do not exceed over Rs 5,000.
We discuss below the rationale behind service tax implication on maintenance charges:
1) Maintenance charges if collected by a profit making organization like a maintenance agency (or builder itself) is subject to service tax with no waiver.
2) Maintenance charges if collected by a non profit making organization like a RWA will have certain service tax exemptions. This was covered under the Service tax circular on Club and Association service charges released in year 2014.
3) If a flat owner is paying less than Rs 5000 as maintenance charges to RWA, he will be exempt from Service tax.
4) If a flat owner is paying more than Rs 5000 as maintenance charges, he may still be exempt from Service tax provided total service tax accumulated by RWA from such flats having more than Rs 5000 maintenance charges does not exceed 10 Lakhs in total.
5) If total of maintenance charges for flats having more than Rs 5000 maintenance charges individually exceed 10 Lakhs, these flat owners will have to pay service tax along with maintenance charges.
Lets take an example for clarity, lets say we have 1000 flats in a society:
-700 of those pay say Rs 4000 and
-300 flat owners pay say Rs 5500 to RWA (RWA is the key).
In this case,
-700 Flat owners will not pay service tax as there maintenance charges in less than Rs 5000
-300 Flat owners amount to Rs (5500*300) in total i.e. 16 Lakh 50 thousand. Since it exceeds 10 Lakhs, the 300 flat owners shall be liable to pay service tax on the amount.
A recent news article in a hindi newspaper reported with instances that maintenance charges below Rs 5000 by builder does not fall under service tax purview. This interpretation is not right and the only amendment to service tax for club and association charges talks of exemption for resident welfare associations alone.
Comments/Feedback invited.Last updated: July 29, 2015 at 17:57 pm