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

2. 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)

3. 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.

4. 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

5. 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