As housing societies are not apparently engaged in any income earning activities, there is a perception that they are not required to comply with any income tax provisions. This impression is heightened by the fact that housing societies are managed by honorary office bearers, who are generally not well-versed with the laws. A housing society is a legal entity and therefore, is treated as separate from its members. It has to comply with various legal laws, including income tax laws.
Status of housing societies under the income tax laws
Section 2 (31) of the Income Tax Act defines the entities that are treated as persons, for the purpose of income tax. A person is the basic entity under the income tax laws, which has to comply with various income tax provisions, including filing of return, payment of taxes, deduction of tax at source, etc. The definition includes ‘an association of persons or body of individuals, whether incorporated or not’.
All housing societies are registered under the cooperative society laws of their respective states. In Maharashtra, housing societies are registered under the Maharashtra Cooperative Societies Act 1960. Being an association of persons registered under a law, a cooperative housing society has to comply with the income tax laws, wherever applicable. As it is a tax entity under the income tax laws, it needs to have a Permanent Account Number (PAN), even for opening a bank account.
Tax benefits available to a cooperative housing society
Section 80 P of the Income Tax Act, allows certain deductions to cooperative societies, including cooperative housing societies.
While computing the total income of a housing society, any income derived by it by way of interest or dividends from any other cooperative society, is fully treated as exempt. As housing societies are mandated to keep their deposits with cooperative banks, all of the interest received by it on its deposits with the cooperative bank, shall be fully excluded from the income of the housing society. However, in case the housing society invests its funds with other entities like public sector banks or private banks, income from there shall become taxable in its hand.
Liability of housing societies to file income tax returns
Unlike an individual and HUF, for whom the law provides a basic exemption limit beyond which they are required to file their income tax returns (ITR), there is no such basic exemption limit for cooperative societies.
Hence, all housing societies are required to file their ITR by the due date, which is September 30 of the year following the financial year, as the accounts of the housing society are required to be audited under the provisions of their respective cooperative society laws. If the housing society fails to file its ITR by the due date, it has to pay interest on the outstanding tax liability in case the liability is not already discharged by way of TDS or by payment of advance tax, for the period of delay, in addition to interest liability on the shortfall in payment of balance tax after adjusting TDS and advance tax. In case the housing society fails to file its ITR by the due date, it can still file the same by March 31 of the year next to the period for which the ITR belongs. For the delay, the society has to pay a mandatory fee of Rs 5,000 if the delay is up to December but the fee will be Rs 10,000 if the delay goes beyond December of the next year. The mandatory fee for delay in filing of the return shall be restricted to Rs 1,000, in case the taxable amount of the housing society does not exceed Rs five lakhs.
The society needs to pay advance tax, in case its advance tax liability exceeds Rs 10,000 for a year in four instalments on June 15, September 15, December 15 and March 15, in the ratio of 15 per cent, 30 per cent, 30 per cent and 25 per cent of the aggregate advance tax liability.
Taxation of housing societies
The tax rates and slabs applicable to housing societies, are different from those of individuals and companies. Since there is no basic exemption, every rupee of the taxable income of the housing society suffers income tax.
For the first Rs 10,000 of the taxable income, after excluding the items discussed above, the society is required to pay income tax at the rate of 10 per cent. For the next Rs 10,000, the applicable rate is 20 per cent. On the income above Rs 20,000, the society has to pay tax at 30 per cent of the income. In addition to the above, the society will have to pay a surcharge of 12 per cent on the tax, in case the income exceeds Rs one crore in the year. The tax calculated shall also attract an education cess of three per cent.
Liability to deduct tax, deposit and file TDS returns
Like the liability to have a PAN, pay advance tax and file its income tax returns, housing societies are also required to deduct tax on certain payments, like salaries to its staff, payments to contractors for carrying out any activity in the society’s buildings, on interest on money borrowed, etc. In order to fully comply with the TDS requirements, the society is required to obtain a Tax Deduction Account Number (TAN), so that it can deposit the TDS to the credit of the central government and also to file the TDS returns periodically.
(The author is a tax and investment expert, with 35 years’ experience)