Interest on FDs to be taxed, maintenance to go up- City Hsg Societies Get I-T Notices

MUMBAI: Many residential societies, including those in posh Worli, Bandra and Lower Parel areas, have received income-tax notices in the past couple of months, asking them to pay taxes. In many cases, even the fixed deposits held by the societies have had their interest earnings deducted for tax.

The issue -as per the new stance of the revenue department -is not to allow an exemption on the interest received on their fixed deposits. For some societies, the amount sought by the department could be as high as 1 crore.

In the coming months, all the 24,500 housing societies (cooperative housing societies) registered in Mumbai could get tax notices, say industry trackers.Most residences in Mumbai are cooperative societies that parked their deposits in cooperative banks, and were getting a leeway till 2014. However, due to a change in a tax law, the government has decided to tax this income. Some of the societies have even approached the government to change this particular law in the upcoming budget.

In Mumbai, cooperative housing societies (CHS) charge a monthly maintenance fee from each flat owner, from which expenses such as municipal taxes and other charges are deducted. The surplus amount in most cases is maintained in a bank as fixed deposit.

Until now, it helped that interest accrued on such fixed deposits, if made in a cooperative bank, did not attract any tax (TDS). But beginning this year, the revenue department has claimed that co-operative banks are essentially banks, and hence, interest paid to the societies is taxable. In many cases, revenue officers have been telling societies to pay taxes on interest received on fix deposits from 2014-15 as well.

“This new stance by the income-tax department of disallowing the exemption US 80P to CHS will directly increase the monthly maintenance bills of everyone living in a CHS, especially those living in apartments in Mumbai. The tax demand created before February will ensure that the tax is collected against this demand by March 31. Add to this, the cost of continued litigation till the case is decided,“ said Jeenendra Bhandari, partner at tax firm MGB & Co LLP.

While many societies which received such a notice thought that after a recent decision of an Income-Tax Appellate Tribunal (ITAT), the revenue department would not send more notices, but in vain. An ITAT decision on January 15 read: “Deduction us 80P (2)(d) is available to co-operative housing society on interest on FD with other co-operative banks.“ More societies have been receiving tax notices and this could see a cumulative demand which could run into hundreds of crores, say industry trackers. “The amount saved through these fixed deposits is not business profit or income for housing societies. It's a corpus and sinking fund, which is kept aside to be used in case of any sudden requirement by the society . And that's the reason it's maintained in most liquid and riskfree instrument like fixed deposits,“ said Yashwant Dalal, president of Estate Agents Association of India.