Taxation of Apartment Owners’ Association (AOA)

Taxation of Apartment Owners’ Association (AOA)

The purpose of writing this blog is to take advantage of the Doctrine of Mutuality for the purpose of computation of Income Tax by Apartment Owners’ Association which is overlooked by many .

The concept of mutuality, (ie. one person cannot make income for himself) is very much relevant in the taxation of Apartment Owners’ Association (AOA).

  1. Normal Sources of Income & Applicability of Income Tax in the case of AOA
S No Sources of Income Applicability of IT Head of Income Remarks
1 Rent Taxable only if it is received from a non-member Income from Other Sources Since AOA is not the owner of the building it cannot be taxed under Income from House Property and hence not eligible for 30 % deduction on rent U/S 24
2 Members’ contribution Not Taxable  Fully exempt based on the concept Doctrine of Mutuality
3 Interest on Bank Deposits Taxable Income from Other Sources No deductions possible
4 Rental Income from Advertisements Taxable Income from Other Sources Normally no deductions are possible
5 Parking charges for non-members Taxable Income from Other Sources Normally no deductions are possible
  1. Income Tax Rate for AOA

In order to find out the rate of tax applicable to an AOA it is necessary to analyse section 167 B –Charge of Tax where shares of members in AOP or BOI unknown etc.

Sec 167B (1). If the individual shares of its members are indeterminate or unknown and if it is an unregistered society under a law in force the rate of tax applicable is Maximum Marginal Rate (MMR) ie.30% + cess. If any one of the members are taxed at a rate higher than the  MMR the entire income of that AOA will be taxed at that higher rate.

(2) If the AOA is not a legally registered Society and the shares of the members are determined and known it will be taxed at different rates;

That portion of the income of the AOA attributable to those members who are taxed at a rate higher than the MMR at the rate at which such members are taxed

The balance portion of the income of the AOA will   be taxed at MMR +Cess

If AOAs are legally registered , the above 2 clauses are not applicable irrespective of whether the shares of its members are indeterminate or not. The rate of tax applicable to such AOAs is the slab rate for individuals below the age of 60 ie. no tax on the first Rs.2,50,000/-; 5 % for the next Rs. 2,50,000/- and so on. Higher Education Cess & Surcharge shall be applicable as per the relevant provisions.

Applicable ITR form : ITR-5

Taxable Person : Association of Persons (AOP)

  1. Applicability of TDS

Tax to be deducted at applicable rates if the payments such as payments to contractors U/s 194C, payments to professional U/s 194J etc. exceeding the prescribed limits. However Section 194C becomes applicable only if the Association is a registered society.

  1. Applicability of GST

Members shall be liable to pay GST @ 18% if the maintenance fees collected from the members by the AOA exceeds Rs 7,500/- per apartment per month and the annual turnover of the AOA exceeds Rs 20.00 lakh

However RCM under GST will be applicable in the following cases if the AOA is registered under GST:

Example

Security services

Goods Transport Agency

  1. Illustrations

For better understanding, please find attached a specimen computation statement for the Assessment Year 2019 20

XYZ APARTMENT OWNERS ASSOCIATION
Income & Expenditure Account for the Fin/Yr ended 31-03-2019
Particulars Expenditure Income
By Annual Subscription from Owners    7,93,000
Rental Income    3,04,000
Interest Income     5,000
Waste Removal Charges    1,11,000
Additional Maintenance Charges     15,000
To Salary & other benefits to staff    1,56,000
Repairs, Maintenance & Cleaning    3,37,000
Expenses for Meetings     15,000
Electricity Charges     97,000
Security Expenses    3,60,000
Depreciation     28,000
Other Expenses     12,000
Excess of Income over Expenditure    2,23,000  
  TOTAL   12,28,000   12,28,000

 

For computing the tax liability, the ideal method would be to file the Tax Return by disclosing the total contribution from members as exempt and disallowing all the related expenses.

Accordingly the computation would be as follows:

Tax Computation Statement
A.Y. 2019-2020
Name: XYZ Apartments Owners Association Previous Year: 2018-2019
PAN    : XXXXXXXXXX
Address   : XXXXXXXX Status: AOP
  Profits and gains of Business or Profession
Business-1
Net Profit Before Tax as per Income & Expenditure A/c 2,23,000
Add: Expenses debited to Income & Expenditure A/c to be added back 10,05,000
12,28,000
Less: Contribution from members totally exempt based on Doctrine of Mutuality -9,19,000
3,09,000
Less: Incomes to be taxed under Head “ Income from Other Sources 3,09,000
Adjusted Profit of Business-1     –
  Income from other sources
Interest income 5,000
Rental Income from non-members 3,04,000
Income chargeable under the head “other sources” 3,09,000
  Total Income 3,09,000
Total income rounded off u/s 288A 3,09,000
Tax on total income 2,950
Add: Cess 118
Tax with cess 3,068
Net Tax 3,068
TDS 28,000
Total prepaid taxes 28,000
Balance Tax 24,932
Fee u/s 234F    –
  Refund Due 24,930

 

Alternatively, it is possible to file the Income Tax Return by showing only” Income from Other Sources” as taxable ignoring Contribution from Members and related expenses completely. For the purpose of disclosure contribution from members and related expenses may be shown in the footnote.

Under this option, the computation will be as follows:

  Income from other sources
Interest income 5,000
Rental Income from non-members 3,04,000
Income chargeable under the head “other sources” 3,09,000
  Total Income 3,09,000
Total income rounded off u/s 288A 3,09,000
Tax on total income 2,950
Add: Cess 118
Tax with cess 3,068
Net Tax 3,068
TDS 28,000
Total prepaid taxes 28,000
Balance Tax 24,932
Fee u/s 234F    –
n Refund Due 24,930

 Author – CA. Jose Zachariah FCA

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