The West Bengal Authority for Advance Ruling ( AAR ) has held that the contributions made by members to the sinking fund of Residential Welfare Associations ( RWAs ) shall be deemed as advance payments for future services and are liable to 18% Goods and Services Tax ( GST ).
The ruling came in response to the clarification on the taxation of contributions to sinking funds by the members or residents living in housing societies and residential complexes sought by the applicant PRINSEP ASSOCIATION OF APARTMENT OWNERS, Kolkata, an Association of Persons registered under the West Bengal Act XVI of 1972.
The applicant association sought clarity on the taxability of contributions made by its members towards the sinking fund, which is intended to cover future contingencies or major capital expenditures.
RWAs collect contributions from their members to create a sinking fund. This fund serves as a reserve to address future contingencies such as major repairs, renovations or infrastructural developments within the residential premises.
The AAR has categorised these contributions as advance payments for services that RWAs are obligated to provide in the future. These services could range from major repairs and maintenance to upgrades in facilities or infrastructure within the residential complex.
The AAR emphasised that contributions to the sinking fund are essentially prepayments made by members to avail of services that will be rendered by the RWA at a later date. As such, these contributions fall within the purview of consideration under the Goods and Services Tax Act, 2017.
The ruling clarified that the GST rate applicable to these advance payments for future services is 18%. This implies that members making contributions to sinking funds will be liable to pay GST at the rate of 18% on the amount contributed.
In result, the two-member authority comprising Dr. Tanisha Dutta ( CGST Member ) and Joyjit Banik ( SGST Member ) has held that contributions to the sinking fund of RWAs by its members are considered advance payments for future services provided by the RWA. This means that members’ contributions towards the sinking fund are subject to GST at the rate of 18%. The ruling highlighted that even though these contributions are made for future contingencies, they are treated as consideration for the future supply of services by the RWA.
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