The topic of taxation and filing returns is perhaps one of the most tedious and debatable. Housing societies in the past dwelled under the misconception that since they are a cooperative society and not primarily focused on profits, they are not liable to pay tax. Nothing could be further from the truth. Many societies especially those who run a tight ship with their accounts audits and have well-informed and proactive committee members are regular with their taxes and returns. The problem of misinformation or lack of initiative lies with the outlier societies who have failed to comply either due to lack of knowledge on housing society tax rules or due to a certain apathy. In this article, we will elaborate upon the income tax rules, tax slabs, and penalties with respect to housing societies.
Under the Income Tax Act of 1961, co-operative societies are taxable entities. It falls under the category of Association of Persons (AOP) which is a group of individuals (whether incorporated or not) who get together with a common purpose and have a legal entity. Under the Co-operative Societies Act, housing societies are granted a separate legal existence. But not all income earned by housing societies is taxable. Section 80(p) of the Income Tax Act applies to co-operative housing societies, providing rules of deduction in respect of income of co-operative societies.
Let’s understand in detail the deductions, exemptions and ITR rules for housing societies.
Liability of housing societies to file income tax returns
As required by the terms of their various cooperative society statutes, all housing societies must file their ITR by the deadline, which is September 30 of the year after the financial year. The housing society must pay interest on the shortfall in payment of balance tax after adjusting TDS and advance tax if it fails to file its ITR by the deadline and the outstanding tax liability if it has not already been discharged by way of TDS or by payment of advance tax.
If the housing society misses the deadline for filing its ITR, it still has until March 31 of the year after the period for which the ITR pertains to file it. If the delay occurs up until December, the society is required to pay a mandatory cost of Rs 5,000; however, if the delay occurs after December of the following year, the fee is Rs 10,000. If the housing society’s taxable amount does not exceed Rs. 5 lakhs, the necessary cost for filing the return late is limited to Rs. 1000.
Income sources for a housing society? And how many are taxable?
While a housing society has a number of sources that bring in finances, not all of their earnings are taxable. Their income can be roughly divided into two parts; the one that comes from members and the one that comes from non-members. Let’s understand these in detail.
1. Contribution from members
The main source that runs the society is the pooling together of the members’ financial contributions to pay for the service and amenities. This includes a gambit of charges paid by members such as maintenance expenses, water, electricity, service staff charges, lift charges, etc. All these are simply collected by the managing committee who acts as a collector and then pays it forward to the relevant parties. These are not taxable under the income tax act. Even after the charges have been paid by the society and there remains some surplus, it is not taxable and is categorised as an exemption under the ‘concept of mutuality’. It means that one cannot profit from one’s own contributions. All the expenses are paid by the members towards a common fund which is not considered as an individual’s income.
2. Interest charged on defaulting members
If the housing society earns any interest from penalising late payments, i.e. charging defaulters interest, it is allowed a 100% exemption and not subject to taxation.
3. Interest earned on investments
Any income earned through the way of interest from any co-operative entity (a co-operative bank) is subject to an exemption. However, if any interest is earned from investment in any other non-cooperative entity is taxable.
4. Interest earned from fixed deposits
Up until 2016, many housing societies would deposit their sinking funds, corpus fund and surplus from member charges as fixed deposits in co-operative banks so that they would be exempt from taxes. However, that amount would run into lakhs. The government then decided to charge these as the Income Tax Appellate Tribunal declared: “Deduction us 80P (2)(d) is available to co-operative housing society on interest on FD with other co-operative banks.” (Source: The Economic Times). This also includes nationalised banks.
4. Interest earned from fixed deposits
Up until 2016, many housing societies would deposit their sinking funds, corpus fund and surplus from member charges as fixed deposits in co-operative banks so that they would be exempt from taxes. However, that amount would run into lakhs. The government then decided to charge these as the Income Tax Appellate Tribunal declared: “Deduction us 80P (2)(d) is available to co-operative housing society on interest on FD with other co-operative banks.” (Source: The Economic Times). This also includes nationalised banks.
5. Dividend
Dividends earned from any other non-cooperative entity is taxable, however, if earned from a co-operative organization is exempt from tax.
6. Rent earned from open spaces
Some societies rent out premises for billboards and signages to companies and also sell their rooftop/terrace space to install mobile or cable towers. Income earned from these rental sources is subject to tax.
7. Non-occupancy charges
As the non-occupancy charges are paid by members not availing the benefits of the residence, it does not qualify for the concept of mutuality benefit, thus is taxable to the society. The transfer fee is exempt from tax.
8. Income earned from parking charges
Earnings made from members paying parking charges is not subject to tax. However, if a housing society rents out parking space to non-members, income earned is liable to be taxed.
Tax slab for housing societies
- If a society earns up to Rs 10,000, the tax slab is 10% of total income.
- If a society earns between Rs 10,001 and Rs 20,000, the tax slab is 20% of the amount by which the income exceeds Rs 10,000 + Rs 1000.
- If a society earns above Rs 30,000, the tax slab is 30% of the amount by which the income exceeds Rs 20,000 + Rs 3000.
Note: In the case of housing societies whose income exceeds Rs 1 crore in a year, their tax liability increases by a surcharge of 12% on the tax. For the period of 2018-2019, taxation increased by 3% for Education Cess and Higher Education Cess. This is levied by the government over and above the base tax liability to raise funding for education.
How to file income tax returns for a housing society
Every housing society is mandated to file ITR according to an amendment was made in section 80 AC of the Income Tax Act in 2018 Budget. Income Tax Return form that housing societies are to use is ITR-5. Housing societies are required to have their PAN Cards, to register themselves as a co-operative and also to open a bank account and file their tax returns. You can file the returns electronically (e-Filing) with a digital signature or send the transmission of data electronically and submit verification with the ITR5 form by post to the income tax department.
Advance Tax
If a society is liable to pay Rs 10,000 or more as tax (Tax liability minus TDS), it is required to pay advance tax in three instalments. By September 15 of the previous year, advance tax is up to 30% of the tax payable, by December 15 of the previous year, up to 60% of tax payable and by March 15 of the previous year, up to 100% of tax payable. Non-compliance interest is 1% per month on tax but no interest is charged if 90% of advance tax is paid from the total tax payable.
Penalty for filing late returns
The due date to file tax returns of the previous year is 30th September of every year. If a housing society fails to file its returns by the due date, it is required to pay interest at 1% per month or part of the month, calculated under simple interest on tax payable on the outstanding tax liability.
Salaries and TDS for housing societies
If salaries paid to its employees exceeds Rs 2,50,000, tax is required to be deducted from salary as per Sections 24, 80C, etc. Housing co-operatives are required to have a TAN (Tax Deduction Account Number) when it deducts TDS (Tax Deductible at Source). If a housing cooperative is making payments (usually to contractors, lift maintenance, security services, professionals, etc) that are taxable as TDS they have to deduct it as per the prescribed rate and file remittance amount to the income tax account (within seven days from the end of the month in which the payment is made). If the one-time payment exceeds Rs 30,000 or if the total payment for a year exceeds Rs 75,000, TDS is deducted at 1% to individual / 2% to a company. If the professional fee of a person is more than Rs.30,000 in a financial year, the society deducts TDS at 10%.
TDS certificate in form 16 A is to be issued to the person whose TDS the society deducts. Quarterly TDS returns have to be filed by the housing society, the due dates for which are, 15th July, 15th October, 15th January (first three quarters of FY), and 15th May (last quarter of FY). If a society does not deduct TDS, a penalty interest of 1% p.m. is charged and if does not send remittance of the TDS, the penalty is 1.5% per month.
GST for housing societies
A housing society has to get a GST Registration if its income exceeds Rs 20 lakh in revenues. But GST does not apply if the monthly member contribution is less than Rs 7500. Property taxes, electricity bills are not to be included in the Rs 7500 and are exempt from GST.
If your society has been non-compliant with income tax deductions and returns so far, it is not too late to get back on the horse and start with basic corrective measures from the managing committee. At a later stage, you can always consider hiring a tax consultant or advisor if you decide your books need professional expertise.
Tax benefits available to a cooperative housing society
Tax benefits for cooperative housing society are allowed under Section 80P of the Income Tax Act. As part of the Budget 2022, the Alternative Minimum Tax (AMT) for cooperative societies were reduced from 18.5% down to 15%. Government also proposed to reduce the surcharge on cooperative societies with income between Rs.1-10 Crores, from 12% down to 7%.
Cooperative society tax rate in 2022
There is a certain income tax rate for all co-operative housing societies. Residential cooperative societies have the option to pay tax at a rate of 22% beginning in AY 2021–2022 in accordance with section 115BAD. The total income will be calculated without taking into account any exemptions or deductions available to cooperative groups, nevertheless.
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Cooperative housing society income tax slab
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Tax rate
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Up to Rs. 10,000
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10%
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Rs 10,000 to Rs 20,000
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20%
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Above Rs 20,000
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30%
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