Thursday, 29 November 2012

Income Tax liability for Housing Society


The general perception of the Managing Committee of a cooperative housing society is that the income generated by the society is not chargeable to tax and therefore do not bother to file Annual Tax Return. This is a wrong perception since though certain types of income of cooperative housing society are fully exempted there are other incomes which are chargeable to tax.

The society's income is generated by the following charges:

(1) Contribution from Members:
This is the most common charges the society collects from its members to run the day to day affairs of the society. They are credited under different heads namely, maintenance, municipal taxes, electricity, lift maintenance, housekeeping, water charges, repair funds, sinking fund. etc. Any surplus generated due to these types of income is not chargeable to tax as its exempted based on the "Concept of Mutuality"

(2) Interest charged on member outstanding dues:
Interest charged by the society on outstanding dues again forms a part of contribution and qualifies the test of concept of mutuality and is exempted.

(3) Interest earned on investment:
Interest earned from any investment made in co-operative bank qualifies for deduction @100% under section 80P(d). However other interest income on investments is fully taxable.

(4) Dividend:
Dividend income received from Indian Companies is fully exempt u/s 10(34). Dividend received from co-operative banks qualifies for exemption under 80P(d) is therefore 100% deductible.

(5) Rental income from advertisement Hoardings
Rental from advertisement hoarding is fully taxable under the head Income from other sources. Expenses which can be directly associated to this earning of income can be claimed.

(6) Rental from mobile tower:
Rental from mobile tower is taxable under the head Income from House Property. Since it is considered as house property it is eligible for standard deduction u/s 24(a) @30% of the rent.

(7) Rentals from use of open spaces/terrace:
If the open space or terrace is rented to members of the society it falls under the concept of mutuality, but if rented to non-members or outsiders the rental income thus becomes fully taxable income under the head Income from House property.

(8) Non-Occupancy Charges:
Non-occupancy charges collected from members are, as per the Income Tax departments view point is a taxable income. This point is debatable and can always be argued in society's favour as in many of the honorable courts ruling.

(9) Parking Charges:
Again in this case the point to be seen is whether the collection are from members or non-members. In case of collections from members they are covered by the concept of mutuality. However in cases of societies have shopping complexes parking charges collected from outsiders would be taxable.

(10) Transfer Fees:-
Transfer Fees is also a charges and is collected from members when their is a change of ownership. 

 In conclusion it may be said that

·         It is necessary to pay income tax by the Co-operative Housing Society.
·         Co-operative Housing Societies have to file Income Tax Returns in Form No. 2.
·         It is necessary to submit returns when Co-operative Housing Society is in loss or there is no income.
·         Taxable Income is as follow:-
a. Transfer Premium and donation.
b. Income received from installing dish antenna.
c. Income received from giving premises on rent.
d. Income received from interest on dues of the members.
e. Income on deposits.
f. Income received from the sell of construction area.
g. Any Income eligible for income tax under Income Tax Act.
·         Co-operative Housing Society can deduct Income Tax amount from the amount to be given to the contractor.
·         Excess fund deposited from members than actual expenses will not be counted for income tax.
·         Further the societies are taxed as per the following slab: _
Income upto   Rs 10000                                     10 %
Income upto   Rs 20000                                     20 %
Above 20000/-                                                  30 %
·         The income tax as arrived above has to be increased by 3 % of tax payable towards Education Cess and Higher education Cess.


3 comments:

  1. Is this applicable for apartment owners association ? becoz we are not registered as cooperative housing society.

    ReplyDelete
  2. In (2) you mention that the interest on members'dues is exempted on the principle of mutuality. But in conclusion (point 4d) you say it is taxable. Which one is correct?
    Similarly in (3) you mention that if the investments are in co-op. banks, they are fully exempted. But in conclusion (point 4e) you show it as taxable?
    Please clarify. Thanks.
    Pandit

    ReplyDelete