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India Eases GST Rules For Cost-Sharing Groups

by Mary Swire,, Hong Kong

25 January 2018

India has eased the rules concerning the membership fees that can be charged by Resident Welfare Associations (RWAs) – a type of cost-sharing group in India – while remaining exempt from goods and services tax.

The changes concern provisions in Indian law that are similar to those in the EU concerning the provision of services by independent groups of persons to their members.

The EU VAT Directive exempts from VAT services that cost-sharing groups can supply to their members under a series of conditions. Such conditions include that the shared services should be directly necessary to the members' activities, that the group should claim from exact reimbursement of each member's share of the joint expenses, and that such exemption should not cause distortions of competition.

Indian law provides as exempt "service[s] 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 five thousand rupees 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."

The change to Indian law, impacting point (c) above, was agreed at a recent meeting of India's GST Council and is effective from January 25, 2018. It provides that the limit should be increased to INR7,500 (USD118.1) per month per member, provided also that the association's annual turnover is not greater than INR2m.

The Central Board of Excise and Customs, in announcing the changes, explained that the overall tax burden on RWAs is reduced under the GST regime, as compared to the Central Excise and VAT regimes, as they can now claim credits relating to taxes paid on purchases of capital goods, such as generators, water pumps, and lawn furniture; goods, such as taps, pipes, and other sanitary and hardware items; and services, such as repair and maintenance services.

TAGS: compliance | VAT tax authority guidance | tax | value added tax (VAT) | India | law | real-estate | goods and services tax (GST) | tax authority | trade | services | VAT goods & services classification | VAT compliance matters | Tax

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