The Tamil Nadu Authority for Advance Rulings (AAR), in a significant decision in Case No. TN/16/ARA/2025 dated 07.05.2025, has held that Goods and Services Tax (GST) is payable on collections towards corpus fund, sinking fund, or capital contributions made by Resident Welfare Associations (RWAs) for future services such as painting, major repairs, and maintenance work. This ruling was delivered in the matter of M/s. Crimson Dawn Apartment Owners Welfare Association.
✅ Key Highlights of the Case:
- The applicant is a residents’ welfare association (RWA) comprising 120 members, providing services like maintenance and repair of common facilities such as corridors, garden, play area, gym, swimming pool, clubhouse, and electric equipment.
- Monthly maintenance charges, collected on a quarterly basis, do not exceed ₹7,500 per month per apartment.
- Additionally, the RWA collects corpus fund / sinking fund for long-term capital expenses like painting, structural repairs, or replacement of lifts and generators.
- These funds are separately accounted for in the books of the association as a liability, distinct from regular maintenance charges.
❓ Key Issues Raised:
- Is GST payable on corpus, sinking, or capital fund collected for future maintenance or capital services?
- If so, what is the applicable GST rate and SAC Code?
- Can the Input Tax Credit (ITC) be claimed on GST paid for inputs and services used for such activities?
🧾 Ruling by the Tamil Nadu AAR:
✔️ GST Liability on Corpus/Sinking Fund:
- The AAR clarified that the collection of corpus or sinking funds is treated as an advance payment for future supply of services, and not a deposit, since these funds are appropriated toward specific services in the future.
- Under Section 2(31) of the CGST Act, such collection is deemed to be “consideration” and thus taxable under GST.
- The supply of services by RWAs to their members qualifies as a business activity, making such services liable to GST.
✔️ Exemption Limited to Monthly Maintenance:
- As per Entry No. 77 of Notification No. 12/2017-Central Tax (Rate), RWAs are exempt from GST only if monthly contributions do not exceed ₹7,500 per member and the services are limited to regular monthly maintenance.
- One-time collections towards corpus/sinking/capital fund do not qualify for this exemption and are taxable separately.
✔️ Input Tax Credit (ITC) Eligibility:
- RWAs are entitled to claim proportionate ITC on inward supplies used for providing taxable services, such as painting or equipment repairs funded through corpus collections.
- However, apportionment is mandatory, as RWAs typically provide both taxable and exempt services.
🔍 Conclusion:
The ruling clearly establishes that GST is payable on corpus and sinking fund collections by RWAs if these funds are used for providing future services. RWAs must account for GST on such collections at the time of receipt and are eligible for input tax credit on related expenditures, subject to proportionate allocation.
📌 Compliance Tips for RWAs:
- Ensure separate accounting for taxable and exempt contributions.
- Collect GST on corpus/sinking fund collections and issue appropriate tax invoices.
- Maintain records to justify ITC claims for capital or repair-related services.
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Regularly review GST implications of all member contributions to avoid compliance risks.