New Delhi: Noida’s high-rise societies are facing financial and administrative challenges after the Uttar Pradesh tax department issued notices to over two dozen societies for non-payment of GST on maintenance and electricity charges. The department has sought details about such charges collected by apartment owners’ associations.
The notices, issued over the past three months, state that monthly maintenance and electricity charges in societies with centralised supply may be taxable at 18 per cent. The department is asking the societies to provide details and may impose GST, along with interest and penalties if non-compliance is found.
So far, AOAs had not been required to pay GST on maintenance or electricity charges collected from residents, both under the old Value Added Tax (VAT) system and the Goods and Services Tax (GST) regime, which was introduced in 2017. However, starting this financial year, the UP tax department began visiting AOAs’ offices to collect information about services provided to residents, including maintenance, electricity, and club/gym facilities.
“The department is collecting information about services rendered by AOAs (RWA) to residents, such as maintenance services, electricity (both Grid and DG), club & gym, and others. They are also holding that the electricity charges recovered are part of a composite supply bundled with the renting of immovable property or maintenance services. Therefore, GST is applicable at the rate of 18 per cent on such electricity charges recovered,” said Rajiva Singh, president of Noida Federation of Apartment Owners Association (NOFAA).
The collection of 18 per cent GST on such electricity charges recovered from residents, treating them as non-taxable or exempt, is in contravention of Circular No. 206/18/2023-GST dated 31 October 2023, issued by the Central Board of Indirect Taxes and Customs (CBIC), and the provisions of the CGST Act, 2017, Singh added.
The department also stated in the notices that electricity charges, when bundled with maintenance services, form a composite supply, and therefore GST at 18 per cent applies.
The AOAs have also been questioned for not acting as a mediator in respect of these electricity charges, as the exact amount billed by the electricity supplier was not passed on to residents stating any commission.
“Nobody informed us about this type of tax earlier or sent any notice. Now the department came up with these notices of years of tax. Who and how will residents pay crores of rupees?” said a member of an AOA on the condition of anonymity.
‘Tension and chaos’
Antriksh Green in Noida’s Sector 50 received a notice from the tax department in October asking for details about electricity and maintenance collections for FY 2019-20. Given the 18 per cent GST, interest, and penalties, the tax liability could be over Rs 1 crore for several societies.
The RWA committees, with the help of the NOFAA and AOAs, have reached out to GST officials and submitted a reply stating that the five per cent extra charge paid by residents had been used for management expenses where GST is not applicable.
“Societies are submitting every bill, maintenance expense, and even searching for all old records. Imposing 18 per cent GST on services like electricity and maintenance suddenly will only create tension and chaos among residents and RWAs,” said a member of the Sector 50 Noida RWA committee.
When electricity is supplied to the whole society through a single connection, the AOA acts as an intermediary between the electricity provider and residents. According to Uttar Pradesh’s electricity tariff schedule for FY 2019-20, AOAs are allowed to ask for up to five per cent extra on electricity charges billed by the provider.
This five per cent is meant to cover administrative costs such as electricity distribution, maintenance, billing, accounting, and audits. Any additional charges above this 5 per cent is what the tax department is questioning, claiming that the AOAs did not act as “pure agents.”
The Lotus Boulevard society in Noida’s Sector 100 and Prateek Stylome in Sector 45 have received similar notices and their RWA members have been visiting chartered accountants, lawyers, and the GST office, and meeting with AOAs and NOFAA to prepare replies to the officials, understand the issue fully, and work toward a solution. The matter is no longer an internal issue of a particular society. Societies have come together to form a forum and address this issue. Residents have started attending society meetings more often and are even ready to visit GST officials to have the notices reconsidered.
“We are worried because, no matter what happens, the tax will ultimately fall on the residents directly. At the end, residents will be the ones facing the financial crisis,” said Sumit Gupta, resident of a society in Noida’s Sector 45.
The AOAs are neither commercial entities nor are they involved in any commercial activity. They exist simply to run the affairs of the society smoothly for the benefit of all residents, and the posts held by office bearers are purely honorary.
“It is easy to understand how much financial burden will fall on the AOAs and, in turn, on the residents/members, as in any case, the burden of 18% GST is not going to be borne by the AOAs,” said Singh.
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Finding a way out
The state tax department is not only issuing notices to the societies but is also summoning all office bearers of AOAs. The societies, through the NOFAA, are now requesting intervention to stop issuing personal summons to office bearers where notices have already been issued.
The NOFAA and AOAs are also planning to escalate the matter to the CBIC, the Revenue Secretary or the Finance Minister, seeking clarification that the 31 October 2023 circular is not applicable to AOAs, and that the current interpretation is incorrect.
“If needed, we will form committees and gather residents to raise the issue, as it is impossible for a society or its residents to pay crores of rupees,” said a member of an AOA.
(Edited by Aamaan Alam Khan)