amol_mahajan@tax-laws

INDIA

BUDGET 2018 – Highlights

For Salaried Class:

1. Standard deduction of Rs.40,000/- to replace Transport Allowance of Rs.1,600 p.m. and medical reimbursement of Rs.15,000 p.a.

For Businesses:

1. Rate of Tax reduced to 25% for Domestic Companies having turnover upto Rs.250 crores (earlier upto 50 crores).

2. Dividend distribution tax payable @ 30% on deemed dividend.

For Senior Citizens:

1. Mediclaim deduction allowed upto Rs.50,000/-

2. Interest income from Banks, Co-Operative Banks and Post Office exmpt upto Rs.50,000/-

3. No TDS upto interest income of Rs.50,000/-.

For Women:

1. Increased take-home pay for first 3 years of employment where employee contribution to PF will be restricted to 8%, with no change in employer contribution.

For NRIs:

1. Capital Asset being Bonds or GDRs, Rupee Bonds of Indian Cos, Derivatives, exempt from tax if sold on recognized stock exchanges in International Financial Services Centre (IFSC), in foreign currency.

General:

1. No change in the tax slabs.

2. Education Cess of 2% and Secondary & Higher Education Cess of 1%, makes way to Health & Education Cess of 4%.

3. STT paid Long term Capital Gains no more exempt under section 10. To be taxed @ 10% in excess of Rs. 1 lakh.

4. Sale consideration to be considered as adequate if Stamp Duty Value of property is within 105% of the same.

5. Investment options to avoid capital gains tax available to gains out of Land & Building only.

Holding period of such investments raised from 3 years to 5 years.

6. 7.75% GOI Savings (Taxable) Bonds, 2018 replaces 8% Savings (Taxable) Bonds, 2003.

7. Social Welfare Surcharge @ 10% of all taxes on goods imported in Schedule I to Customs Tariff.

8. Road & Infrastructure Cess @ Rs.8 per litre on petrol and high speed diesel oil, in addition to customs and excise duty, will not impact prices as existing duties slashed.

Some Missed Targets:

A CORPORATE TAXATION:

The basic rate of Corporate Tax in India at 30% is higher than the rates prevalent in the other major Asian economies, making our domestic industry uncompetitive. … I, therefore, propose to reduce the rate of Corporate Tax from 30% to 25% over the next 4 years. Hon’ble Finance Minister Shri Arun Jaitley in his Budget Speech of 28 Feb. 2015.

Towards fulfilment of my promise to reduce corporate tax rate in a phased manner, I now propose to extend the benefit of this reduced rate of 25% also to companies who have reported turnover up to `250 crore in the financial year 2016-17. This will benefit the entire class of micro, small and medium enterprises which accounts for almost 99% of companies filing their tax returns. Hon’ble Finance Minister Shri Arun Jaitley in his Budget Speech of 1 Feb. 2018.

B GDP:

Based on the new series, estimated GDP growth for 2014-15 is 7.4%. Growth in 2015-16 is expected to be between 8 to 8.5%. Aiming for a double-digit rate seems feasible very soon. Hon’ble Finance Minister Shri Arun Jaitley in his Budget Speech of 28 Feb. 2015.

IMF, in its latest Update, has forecast that India will grow at 7.4% next year. Hon’ble Finance Minister Shri Arun Jaitley in his Budget Speech of 1 Feb. 2018.

C Fiscal Deficit:

I will complete the journey to a fiscal deficit of 3% in 3 years, rather than the two years envisaged previously. Thus, for the next three years, my targets are: 3.9%, for 2015-16; 3.5% for 2016-17; and, 3.0% for 2017-18. Hon’ble Finance Minister Shri Arun Jaitley in his Budget Speech of 28 Feb. 2015.

Revised Fiscal Deficit estimates for 2017-18 are `5.95 lakh crore at 3.5% of GDP. I am projecting a Fiscal Deficit of 3.3% of GDP for the year 2018-19. Hon’ble Finance Minister Shri Arun Jaitley in his Budget Speech of 1 Feb. 2018.

Promises Delivered:

A INFLATION:

To ensure that our victory over inflation is institutionalized and hence continues, we have concluded a Monetary Policy Framework Agreement with the RBI, as I had promised in my Budget Speech for 2014-15. This Framework clearly states the objective of keeping inflation below 6%. Hon’ble Finance Minister Shri Arun Jaitley in his Budget Speech of 28 Feb. 2015.

B IMPLEMENTATION OF GST

Total Revised Estimates for expenditure in 2017-18 are `21.57 lakh crore (net of GST compensation transfers to the States) as against the Budget Estimates of `21.47 lakh crore. Hon’ble Finance Minister Shri Arun Jaitley in his Budget Speech of 1 Feb. 2018.

ROAD AHEAD:

A ‘Housing for all’ by 2022

B Each house in the country should have basic facilities of 24-hour power supply, clean drinking water, a toilet, and be connected to a road.

C Electrification, by 2020

JAI HIND

Dear Readers,

APPLICABILITY OF GST TO CO-OPERATIVE HOUSING SOCIETY LTD.

Section 9(1) of the CGST Act, provides that subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

[Similar provision exists in section 5(1) of IGST Act]

Thus, GST is payable by a taxable person on all supplies (taxable supply) of goods or services based on the transaction value of supplies as determined under section 15 and at such rates as may be notified by the Government.

Who is a Person?

Section 2(84) defines "person" includes—

(a) an individual;

……

(i) a co-operative society registered under any law relating to co-operative societies;

……

Who is a taxable person?

Section 2(107) defines "taxable person" is a one who is liable to get registered.

Who is liable to get registered?

Every person who makes taxable supplies (outward supply) and whose aggregate turnover exceeds Rs.20 lakhs (Rs.10 lakhs in special States) during the financial year or who is registered under the erstwhile law or who inter alia is required to pay tax under reverse charge, is required to get registered.

What is Outward Supply?

Section 2(83) defines "outward supply" to mean supply of goods or services or both, in the course or furtherance of business

So what is a Business?

Section 2(17) defines "business" includes

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

……

(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;

……

In the light of the above, let us examine the applicability of GST provisions to Co-Operative Housing Societies Ltd. (CHS Ltd)

Is CHS Ltd a “person” under GST provisions?

From the definition of “person”, a co-operative society registered under any law relating to co-operative societies is a “person”.

Since CHS Ltd is registered under the Co-Operative Societies Act (for instance Co-Operative Housing Societies within the State of Maharashtra are governed under the Maharashtra Co-Operative Societies Act, 1960), and hence a CHS Ltd is a “person”.

Whether a CHS Ltd is required to get registration under the GST provisions?

Requirement of registration occurs in following cases:

(1) Every person making taxable supplies (outward supply); AND

(2) Whose aggregate turnover exceeds Rs.20 lakhs (Rs.10 lakhs in special States) during the financial year; OR

(3) Who inter alia is required to pay tax under reverse charge

Hence, if the CHS Ltd is making outward supplies on which tax is leviable and if its aggregate turnover [as defined in section 2(6)] exceeds the limit prescribed during the financial year, it has to get registered.

As seen above, the term "outward supply" is defined to mean supply of goods or services or both, in the course or furtherance of business.

Business is defined to inter alia include provision by a society (for a subscription or any other consideration) of the facilities or benefits to its members.

The word subscription means – an amount of money that you pay regularly to receive a product or service – Cambridge Dictionary.

Consideration is defined in section 2(31) which inter alia includes any payment in money or otherwise for supply of goods or services, except for deposits given in respect of supply of goods or services till the supplier applies such deposits as consideration for the said supply.

The word facility means - something (such as a hospital) that is built, installed, or established to serve a particular purpose. – Merriam Webster Dictionary.

The word benefit means - something that produces good or helpful results or effects or that promotes well-being. – Merriam Webster Dictionary.

From the above it can be concluded that CHS Ltd is a person making taxable supplies (outward supply) and if its aggregate turnover exceeds Rs.20 lakhs (Rs.10 lakhs in special States) during the financial year, it has to get registered under the combined reading of condition one and two above, for registration.

As a corollary, although CHS Ltd is a person making taxable supplies (outward supply), if its aggregate turnover does not exceed Rs.20 lakhs (Rs.10 lakhs in special States) during the financial year, it does not have to get registered under the combined reading of condition one and two above, for registration.

Now let us see the third condition where the CHS Ltd is required to pay tax under a reverse charge, then it has to get registered without any threshold limit. Let’s take a classic example where most of the CHS Ltd avail legal services for one or other reason.

If a CHS Ltd avails any legal services, whether reverse charge is applicable to CHS Ltd?

As per Notification No.13/2017 – Central Tax (Rate) dated 28^th June, 2017, (read with press release dated 15/07/2017 on Legal Services by Advocates), at entry no.2, reverse charge is to be paid by the business entity located in taxable territory on legal services provided by advocates or firm of advocates. [Similar notification under IGST Act – Notification No.10/2017-Integrated Tax (Rate) dated 28/06/2017 at entry no.3]

Notification No.12/2017 – Central Tax (Rate) dated 28^th June, 2017, at entry no.45 specifies that intra-state legal services provided by advocates or firm of advocates to (a) a non-business entity or (b) a business entity whose aggregate turnover during the preceding financial year does not exceed Rs.20 lakhs (Rs.10 lakhs in special States), is exempt from whole of tax. (Here business entity is defined to mean any person carrying out business). [Similar notification under IGST Act – Notification No.9/2017-Integrated Tax (Rate) dated 28/06/2017 at entry no.47].

Thus, as we have seen above, CHS Ltd being a business entity, if its “aggregate turnover” does not exceed the prescribed limits in the preceding financial year, legal services delivered to it will be Exempt from GST and accordingly no reverse charge will be payable. Accordingly, no registration will be required under the third condition for registration.

As a corollary, CHS Ltd being a business entity, if its “aggregate turnover” exceeds the prescribed limits in the preceding financial year, legal services delivered to it will not be exempt from GST and accordingly reverse charge will be payable. Accordingly, it will be required to get the registration.

On what amounts is GST applicable in CHS Ltd Billing?

Notification 12/2017 – Central Tax (Rate) dated 28/06/2017, exempts at Sr.no.77 for heading 9995 (services of membership organizations) as under:

Service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution–

(a) as a trade union;

(b) for the provision of carrying out any activity which is exempt from the levy of Goods and service Tax; or

(c) up to an amount of Rs5,000 per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex.

[Similar notification under IGST Act – Notification No.9/2017-Integrated Tax (Rate) dated 28/06/2017 at entry no.80]

Similar provisions existed in the erstwhile Service Tax laws vide item no.28 of Exemption Notification No.25/2012-ST dated 20^th June, 2012.

CBEC also in its press release dated 15th July, 2017 on Services provided by RWA/Housing Society, has clarified that there is no change made to services provided by the Housing Society (RWA) to its members in the GST era.

The Education Guide published by CBEC for Taxation of Services on 20^th June, 2012 at para 7.11.8, stated that:

What is the tax liability of a RWA on the charges collected from own members by way of reimbursement of charges or share of contribution for the common use of its members in a housing society or a residential complex?

Service of an unincorporated body or a non- profit entity registered under any law for the time being in force to its own members up to an amount of Rs. 5,000 per member per month by way of reimbursement of charges or share of contribution is exempt from service tax. Where RWA is working as a pure agent of its members for sourcing of goods or services from a third person, amount collected by RWA from its members may be excluded from the value of taxable service in terms of Rule 5(2) 0f Service Tax (Determination of Value) Rules, 2006 subject to compliance with the specified conditions.

Rule 33 of CGST Rules, 2017 prescribes certain conditions to exclude the expenditure or cost incurred by supplier as a “pure agent”:

(i) the supplier (CHS Ltd) acts as a pure agent of the recipient (member) of the supply, when he makes the payment to the third party on authorisation by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and

(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

Explanation.- For the purposes of this rule, the expression "pure agent" means a person who‑

(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;

(c) does not use for his own interest such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

Thus, if ALL the above conditions are satisfied, then no GST will be charged by CHS Ltd on reimbursement of the expenditure or costs incurred by it as a “pure agent”, from its members.

Further “consideration” as defined under section 2(31) of CGST Act, excludes deposits until the supplier (CHS Ltd) applies such deposit as consideration for the said supply. Hence all contributions towards various Funds created by the CHS Ltd shall also be excluded from GST at the time of contribution, however will attract GST when the CHS Ltd applies (uses) such deposits towards supply of goods or services to the members.

Conclusion:

CHS Ltd is a person engaged in making taxable supply in business activity under the GST provisions. If the “aggregate turnover” during the financial year exceeds Rs.20 lakhs (Rs. 10 lakhs in case of special States), CHS Ltd is required to get registration under GST. If CHS Ltd inter alia is required to pay tax under reverse charge, then it is required to get registration, without any threshold of “aggregate turnover”.

On registration, CHS Ltd is required to levy tax on the taxable value of all its taxable supplies of goods and services to its members, except for deposits taken. GST is applicable on deposits once the CHS Ltd applies the same to its supplies. Taxable value excludes expenditure or costs incurred as a “pure agent”.

An Exemption threshold of Rs.5000 per month per member is available to CHS Ltd. Thus, if the items invoiced by CHS Ltd which attract GST, totals upto Rs.5000 per month per member, no GST is leviable. Also, if the items invoiced by CHS Ltd which attract GST, totals beyond Rs.5000 per month per member, GST is leviable on the Taxable Value Less Rs.5000, per month per member.

On registration, CHS Ltd has to pay tax on reverse charge if it procures goods or services from any unregistered supplier. Notification No.8/2017-Central Tax (Rate) dated 28 June, 2017, exempts registered persons from paying such reverse charge if aggregate value of all such intra-state supplies of goods or services received from any or all such unregistered suppliers is upto Rs.5000 per day. [No such exemption is available if a registered person (CHS Ltd) procures goods or services from any inter-state unregistered supplier]

On registration, CHS Ltd is eligible to claim Input Tax Credit (ITC) for all its inward supplies of goods and services, including the reverse charge paid, as applicable.

A summary of various charges collected by CHS Ltd as per the Bye laws is summarised below for applicability of GST provisions:

No.	Item	Applicability of GST	Reasons for Not Applicable
1	Contribution towards Reserve Fund	NO*	In the nature of Deposit
2	Contribution to Repairs and Maintenance Fund	NO*	In the nature of Deposit
3	Contribution to the Sinking Fund	NO*	In the nature of Deposit
4	Property Taxes	NO**	Pure Agent
5	Water Charges	NO**	Pure Agent
6	Interest on the defaulted charges	YES	-
7	Non-occupancy Charges	YES	-
8	Insurance Charges	YES	-
9	Service Charges	YES	-
10	Legal Fees	YES	-
11	Any other charges approved by the General Body at its Meeting (contribution for festival, etc.)	YES	-

* GST will be applicable on the amount withdrawn by CHS Ltd from any Fund (at the time of such withdrawal), to meet the permissible expenditure of the Society.

** When all the conditions prescribed under Rule 33 of CGST Rules, 2017 are satisfied.

Trust the above information is found useful to the readers.

Comments, suggestions and improvements are most welcome.

Best Wishes,

Amol Mahajan

ps:

F.No.332/04/2017-TRU - Tax Research Unit of MoF has come out with FAQ on levy of GST to Co-Operative Society

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