Housing society need not pay tax on transfer fees Jan 8, 2015

A south Mumbai housing society has won an appeal in a tax dispute relating to taxation of non-occupancy charges and transfer fees received by it from its members. The Income-Tax appellate tribunal (ITAT) which heard this case, held that these receipts would not be taxable in the hands of the housing society.

New Gulistan Co-op Housing Society, located at Carmichael Road, an upmarket residential area, had received transfer fees aggregating to Rs 5 lakh and non-occupancy and other charges of nearly Rs 2 lakh during the financial year 2000-01. The Commissioner of Income-Tax (Appeals) had held in favour of the society that these sums would not be taxable. The tax department went in for appeal at the ITAT level. However, the ITAT has dismissed this appeal. 

The principle of mutuality, which governed this decision and other favourable decisions given earlier by the ITAT, implies that no one can make a profit out of itself. Thus, there can be no tax incidence.

Transfer fees received on sale of a flat are typically credited to a fund which is used for the welfare of the society and its members. The same is the case with non-occupancy charges, which are paid by those members that lease out their flats. "The crucial point for seeking tax exemption by a housing society is that the members of the society should be entitled to participate in the surplus, if any," say tax experts.

According to I-T authorities, housing societies charge exorbitant transfer fees ranging from 1% to 5% of the value of a flat. Usually, these payments are contributed equally by the flat seller and buyer. As the housing society model bylaws in Maharashtra prescribe for a maximum transfer fee of Rs 25,000, such payments are often disguised as payments received towards repair fund, amenities fund or even voluntary donations. Hence, I-T authorities contend that societies, in fact, make a profit and should be taxed.

It is understood that the issue of taxability of transfer fees is pending before the Supreme Court. For now, housing societies in Mumbai can continue to benefit from the favourable decision of the ITAT.

Know More About  MCHITHANE

About Us

MCHI-THANE has always been very clear that fine housing complexes and shopping malls cannot stand in isolation. A great City is the sum total of great buildings, great infrastructure and great people. MCHI has been committed to growth of the real estate sector and is credited with the harmonious growth and rise in quality and standards of construction in Thane City in the past decade.

Its aim as an Association of Developers has been to seek rational rules and regulations which are uniformly applied across the board as this will to a great extent result in speedy construction, cost reduction, fair pricing and a push for better quality standards at par with the developed world, with a high level of transparency.