No budget, but circulars galore for tax payers

Levy of service tax on services provided by RWAs to members - Clarification

In one such instance, the tax department has made a clarification on the service tax chargeable on services provided by resident welfare associations (RWA). RWAs are civic bodies representing interests of residents of specific localities. The membership to the RWAs is voluntary. All resident welfare associations are registered under Co-operative Societies Act.

The services such as providing security to the residential locality are chargeable at 12 per cent service tax. According to the clarification, such a tax will not be levied if the contribution by member is below Rs 5,000 per month. However, if the contribution breaches the Rs 5,000-ceiling, the entire amount would be chargeable under the service tax.

This brings a huge relief for the RWAs and residents who have been struggling with tax demands from the department officials.

“This is indeed a welcome clarification. There was no clarity as to what happens when the Rs 5,000-limit breaches. The tax department has also clarified that even if the amount for services is paid in lumpsum, it will not be charged with service tax,” Bipin Sapra, tax partner, EY, said.

According to the clarificatory circular, “However, a monetary ceiling has been prescribed for this exemption, calculated in the form of Rs 5,000 per month, per member contribution to the RWA, for sourcing of goods or services from third person for the common use of its members. If per month, per member contribution of any or some members of a RWA exceeds Rs 5,000, the entire contribution of such members would be ineligible for the exemption.”

RWAs provide a host of services like maintenance of common areas, facilities including lift, water, health and fitness centre, swimming pool, payment of electricity bills for the common area and lift among other things.

Further, in cases where the RWAs act as pure agents and provide services to its members, like submitting electricity bill of a member to the discom, it will be exempt under the service tax. “Electricity has been one of the major issue as in many cases, RWAs have been acting as pure agent on behalf of residents,” Sapra said.

RWAs, it has now been clarified, will also be eligible for CENVAT credit for the service tax paid, which ultimately will trickle down to benefit taxpayers, Sapra added.

with thanks : Indian Express : LINK