How To Reduce Service Tax Liability of Apartment Owners Association
The Service Tax Return is required to be filed by any person liable to pay the service tax. A small service provider whose aggregate value of taxable services rendered in the previous year has not exceeded the limit of Rs 10 Lakh is exempted from Service Tax.
One important question by apartment owners and it Association is- “Whether the service offered by association to its members are liable for Service Tax?” Yes, Apartment Owners Association is liable to pay Service Tax.
Reduce Service Tax liability of Association
An apartment owners association or Residents Welfare association or Housing Society can register themselves as service providers and get Service Tax register number for filing returns. Services provided by associations are taxed under the separate category of club or association’s services. For maintenance/repair, contractors can be appointed by the association who would bill the association for their services. If the association pays the contractor and gets the amounts reimbursed by the members, the same can be taxed in the hands of the association unless the association can be said to have incurred the expenditure as a pure agent of the service receiver (member) in which case the amounts reimbursed may be excluded.
According to Source, an Apartment owners Association, Residents welfare association or society who’s total consideration received from an individual member for providing service does not exceeds Rs 3000 Per Month, is eligible to avail of exemption from levy of Service Tax.
An Association or society shall be eligible to avail credit of the service tax paid by association to other service providers if both the input and output services fall under same category of service.
An association can collect service charge from its members for the providing services, facilities, advantages or maintenance of apartment complex. This reduce its Service Tax liability to some extent and net or total tax liability of association will be difference of amount paid to service provider and amount received from their members. Once the service tax on the input service has been paid, association can claim for Service Tax Credit.
Service Tax Credit
The Finance Act, 2002 has amended Section 94 of the Finance Act, 1994 to provide for credit of Service Tax paid on input services used in the output services where both the input and output services fall within the same category of taxable services.
In terms of Rule 3 of the Credit Rules an output service provider shall be allowed to take credit of the Service Tax paid on input service in the following manner, namely:-
- Where the input service falls in the same category of taxable service as that of output service, Service Tax credit shall be allowed to be taken on such input service for which invoice or bill or challan is issued on or after the sixteenth day of August, 2002.
- In any case, Service Tax credit shall be allowed to be taken on such input service for which invoice or bill or challan is issued on or after the fourteenth day of May, 2003.
The service provider is required to maintain records reflecting the following details
- Serial number and date of document on which credit is availed.
- Name and address of the service provider.
- Service Tax registration number.
- Description of service received.
- Value of service received.
- Amount of credit availed.
- Date of utilization of credit.
- Amount of credit utilized and balance thereof.
Credit of tax on input service will be available only if service tax is payable on output services. If output services are exempt from tax or not taxable at all, credit of input service tax is not available. However, if input service is partly used for taxable service and partly for exempt or non-taxable service, credit of service tax paid on input services is available as per provisions of rules 3(4) and 3(5). [Rule 3(3) of Service tax Credit rules].
Points to Remember
- Service Tax Credit is only available if input service is in relation to output service.
- Service Tax Credit can only be availed once the service tax on the input service has been paid.
- No credit is available if the output service is exempt from service tax.
- If input and output services do not fall in same category, full input service tax credit will be available only if separate records of input services used in relation to output taxable services are maintained.
- Full credit is available, if input and output services fall in same category
- If separate records are not maintained, then credit of input tax will be available subject to ceiling of 35% tax payable on output services. Even here, the input services should have been used in relation to output service.
