A Comprehensive Guide on Income Tax Society
Managing finances in a housing society is a complex process. Members of the society contribute the major chunk of income for different purposes such as maintenance charges, property tax, fund allocation, and Municipal taxes. Such incomes are not taxable. However, as per the Income Tax Act, a housing society also has some other sources of taxable income.
In this guide, we will talk about the different aspects of the Income Tax Society. The taxation framework for housing society is complicated due to its variation of tax rates and regulations. Read ahead to learn further about the details of income tax cooperative society.
What is an Income Tax Housing Society?
According to the Income Tax Act of 1961, it is mandatory that co-operative societies need to pay taxes. It falls under the category of Association of Persons. Before we understand the intricacies of deductions, exemptions, and ITR rules, let us walk you through the structure of a housing society:
Common facilities
Societies often have shared amenities like parking areas, recreational amenities, and garden space.
Financial responsibilities
The maintenance costs and charges for other resources are part of this financial management in society.
Legal Aspects of Income Tax Society
Housing societies have specific tax obligations as per the Income Tax Act. The government has established a taxation framework to make separate rules for income tax society. As per the update posted on 6 August 2024, a cooperative society tax rate has been reduced from 12% to 7% on income more than Rs. 1 CR up to Rs. 10 CR. Instead, housing societies are expected to pay the Alternative Minimum Tax at the rate of 18.5%. The income generated by a housing society has not always been subjected to taxation. There are exemptions in a few cases.
Income Sources of Income Tax Society
Housing societies have many income sources but not all of them are taxable. Their income structure is divided into two parts: one from the members’ contribution and others from non-members. Let us delve deeper into the resources to check whether they are complaint with the income tax society regulations:
Members’ contribution
The primary source of the society’s income depends on the financial contribution of the members. The contributions made by members are pooled into the common fund. This comprises the charges paid by members such as maintenance costs, water, electricity charges, service staff charges, and lift charges etc. The managing committee plays this crucial role to manage finances and pay everyone accordingly. The surplus money after paying all charges falls under the category of exemption, known as the ‘concept of mutuality.’
Interest levied on defaulting members
When a housing society levies any charges for late payments, this falls under the category of exemption. The taxation framework is not applied to such charges.
Interest earned from investments
Income earned as part of the interest from the cooperative body is part of the exemption. But when such income incurred from any non-cooperative body is subject to taxation.
Interest gained from fixed deposits
Until 2016, housing societies deposited their sinking funds, corpus funds, and surplus money into the bank to avoid tax payments. Sometimes, the amounts deposited were in lakhs. The government then decided to charge these amounts as per the Income Tax Appellate Tribunal under section 80P (2)(d).
Dividend
Dividends from any other non-cooperative bodies are subject to tax payment. However, the dividends from the co-operative body are exempt from the taxes.
Rent earned from open spaces
Some societies rent their spaces for different services such as companies installing billboards and signages. Incomes earned from such renting out are subject to taxation. Also, if the space is sold for installing mobile and cable towers is not exempted from taxation.
Income from parking charges
Earnings from parking charges are not liable to tax payment. However, parking spaces when rented out to non-members are subject to taxation.
Housing Society Tax Rates for Cooperative Society
Understanding the tax rates for income tax society helps in maintaining the finances well. Such societies are often determined based on the annual income. They need to mandatorily file the tax returns as per the rules and regulations. Following are the taxation slabs for a housing society:
- When a society earns up to Rs. 10,000, the tax slab stands at 10% of the total income.
- If a society’s income stands between Rs. 10,000 to Rs. 20,000, the tax slab is 20% of the amount.
- Also, when the society’s income reaches beyond the bracket of Rs. 30,000, the tax slab is around 30% of the amount.
If the society’s income stands at Rs. 1 CR and more, the tax liability would be increased by a surcharge of 12% on the tax.
Filing Income Tax Returns for a Housing Society
According to the Income Tax Act 2018, every housing society is bound to file Income Tax Returns. They need to fill up the ITR form 5 along with the necessary documents like a PAN card for registration and opening the account. Also, there is an option to file ITR electronically with a digital signature.
A housing society needs to pay the advance tax as well. In case society is bound to make a payment of Rs.10,000, they need to pay this in three instalments. By 15th September 2024, one can pay up to 45% of the advance tax out of the total tax payable.
One thing that needs to be kept in mind for all housing members is that they should clear their dues within the stipulated time. Failing to pay within the due date will result in a 1% interest rate per month or for half of the month. Such an amount is calculated based on the outstanding tax liability.
Issues in Taxation of Society Income Tax
Taxation of society income tax comes with many difficult challenges. Following are a few challenges that housing societies face:
Problems in regulations
There are many challenges associated with a housing society’s regulations such as poor maintenance, high maintenance charges, internal conflicts, and careless planning.
Lack of awareness
Many housing societies are not aware of tax compliance leading to the legal consequences. This is important for the managing committee to gain knowledge of the legal aspects and convey the same to the members.
Bookkeeping problems
Bookkeeping is essential for tax filing. However, many housing societies face problems in keeping accurate financial records.
Benefits of Complying with Income Tax Regulations
Adhering to the income tax society regulations provide numerous benefits in the following ways:
- Societies following the regulations can be saved from any impending legal issues.
- Having a clear knowledge of taxation can help them manage their finances well. This will reduce any further mishandling related to financial planning and management.
- Transparency in following the tax regulations will build credibility and trust among the members. Eventually, such societies will gain a good reputation.
Digital Transformation of Income Tax Housing Society
As the government is steadily moving to digitisation, the ITR filing process is no exception. It has been streamlined on the virtual platform. Such a shift has made the process way easier and seamless. The managing committee of a housing society should keep themselves abreast with such changes. It has been a long-standing practice to make such digital changes in the taxation framework. The managing committee needs to play a crucial role here to make their members educated on such digital changes.
Conclusion
Managing the intricacies of the Income Tax Society requires in-depth knowledge of the taxation framework. Individuals who are in charge of a housing society should make themselves familiarise with the basic concepts related to taxation of society income tax and relevant laws.
In the above guide, we have covered the details of the cooperative tax rates, income sources, and the laws associated with income tax for housing society. As the changes are quite evident when it comes to taxation for housing societies, adequate knowledge on this can help the housing societies navigate the challenges properly.
Frequently Asked Questions
What is the TDS rate for society?
Under section 194 C, the deduction of TDS stands at 2% if the single contract is more than Rs. 30,000 or when the total payment in the same financial year exceeds Rs. 1,00,000. TDS deduction in society is levied on security services, lift maintenance charges and contractors’ fees.
What is the limit for TDS on rent for society?
When the property is rented out for any association and the value exceeds Rs. 2.4 lakhs, TDS will be applied.
Is TDS applicable to society maintenance?
TDS on maintenance charges should be deducted under Section 194C according to the Income Tax Act, 1961. The rate is 1% to 2% in case the residents are making the payment.
What is the due date for filing an income tax return for a cooperative society?
As the cooperative societies are mandated under the statutory audit provisions, they must file the ITR on September 30 according to the Income Tax Act 1961.
Is Society Maintenance Tax-free?
If any housing society charges more than Rs. 7500 as a maintenance fee, then 18% of GST will be added to the total maintenance bill. In case any individual owns multiple residences in a society, they will get their exemption limit.