Reasons why living in housing society will be expensive under GST

It is being anticipated that post July 1, 2017, homebuyers will pay a uniform rate on their purchase under the Goods and Services Tax (GST) regime. Experts feel that the move will bring down property prices in the country. While buying a house may or may not become cheaper, living in a housing society is surely going to burn a big hole in your pocket in the coming months, courtesy GST. 

Higher maintenance charges 
If you stay in a housing society where your monthly maintenance charges are in excess of Rs 5,000 then brace up to shell out GST at 18%. Although the existing rate stands at 15.55%, which includes 15% service tax, 0.5% Swachh Bharat cess and 0.05% non-agriculture tax, the change post-GST will lead to an additional burden of 2.5% on residents. 

"In the GST era, it appears that any unregistered dealer purchase made by any cooperative housing society (CHS) will attract GST on reverse charge mechanism (RCM) basis. This means that the liability to pay tax is cast upon the receiver and not the seller. 

Expenses such as legal fees, security expenses, transport charges, labour charges might attract GST on RCM irrespective of whether the CHS billing exceeds Rs 20 lakh or not in the previous year. "Housing societies are not business entities. It is unfair on the part of the government to levy taxes," says Dayanand Nene a housing activist in Mumbai - Thane's Saket area. This major issue requires a serious rethinking on the part of the government. 

Property tax not subsumed 
The government has not subsumed the property tax in the new tax regime. This means that a property owner will continue to pay property tax on a yearly basis as per the state law concerned apart from the GST. There cannot be GST on property tax since, there cannot be double taxation under GST. 

Additional charges 
Apart from the annual maintenance charges, utility bills such as water charges too, will be taxed under a separate head in the new tax regime. "CHS does not act as a supplier of services of water or power supply and, thus, it would not attract GST," says Satish. But, like in the past, residents would have to pay tax on water and power usage. 

Repair work to cost dearer 
In case a housing society carries out maintenance or renovation work and buys commodities such as cement, paint or steel, it can get deducted the tax paid on the purchase of these commodities from the total amount paid under GST.

Housing societies with a bigger purse to be hit 
Housing societies that have an annual corpus of over Rs 20 lakh will have to compulsorily take registration in the GST era. Even if a housing society's monthly maintenance charge is less than Rs 5,000 per flat, if its membership base is large and the annual collection is in excess of Rs 20 lakh, it would be liable to pay GST..

The current tax exemption of Rs 5,000 per member per month may not be applicable in the GST era since the billing in totality for the CHS will be taken into account. "Overall, GST shall be a big disappointment from a CHS point of view. 

Courtesy: Inputs from ET