Clubs, associations, societies and resident welfare associations have been a recurring area of GST litigation. The 2021 amendment to Section 7 of the CGST Act clarified that consideration paid by members to a club, association or society for goods or services is deemed to be consideration for a supply. This article explains the current position.
The Mutuality Principle Before GST
Under the pre-GST service tax regime, the Supreme Court in State of West Bengal v. Calcutta Club Ltd. (2019) held that a club and its members are not separate persons and that services by a club to its members cannot be taxed under the principle of mutuality.
This principle created uncertainty under GST because Section 2(17)(e) of the CGST Act specifically includes in the definition of business the provision by a club, association, society or any such body to its members for a subscription or any other consideration.
The 2021 Amendment
Finance Act 2021 inserted an Explanation to Section 7(1)(a) of the CGST Act to clarify that, notwithstanding anything contained in any judgment, decree or order of any court, tribunal or authority, the consideration paid by a member to a club, association or society for the supply of goods or services by such club, association or society to the member shall be deemed to be consideration for the purpose of Section 7.
In effect, the amendment statutorily overrides the mutuality principle and confirms that:
- A club and its members are considered separate persons for GST.
- Supply of goods or services by a club to its members is a supply.
- Consideration paid by members is taxable consideration.
What Is Taxable
The following are generally taxable, subject to exemptions:
- Membership subscription and admission fees.
- Fees for use of club facilities such as gym, swimming pool, sports courts.
- Charges for food and beverages served to members.
- Room charges for members.
- Event fees and participation charges.
- Maintenance charges above the exemption threshold.
Exemptions
Certain exemptions continue to apply:
- Resident welfare associations are exempt up to Rs 7,500 per month per member for maintenance charges, subject to conditions.
- Certain services by charitable organisations may be exempt under separate notifications.
Input Tax Credit
A club or association making taxable supplies to members can claim input tax credit on goods and services used for such supplies, subject to Section 16 and Section 17.
If a club also receives exempt income or makes exempt supplies, it must reverse common input tax credit under Rule 42 and Rule 43.
Practical Compliance Steps
- Issue tax invoices for all taxable supplies to members.
- Charge GST at the applicable rate on membership and service charges.
- File GSTR-1 and GSTR-3B including member supplies.
- Maintain member-wise records and distinguish taxable and exempt receipts.
- Apply reverse charge on services from unregistered suppliers if applicable.
- Reconcile ITC on club expenses with taxable turnover.
Common Mistakes
- Assuming mutuality applies and not charging GST after the 2021 amendment.
- Not issuing invoices to members.
- Failing to charge GST on food, rooms and event fees.
- Incorrectly claiming exemption for all RWA receipts without verifying the monthly per member limit.
How Anuj Desai & Associates Can Help
We help clubs, associations and RWAs implement GST on member supplies, manage exemptions, reverse charge and input tax credit, and defend assessments arising from the mutuality period.
Contact Anuj Desai & Associates
Email: office@anujdesaiassociates.com
Phone: 9619456656
Website: https://anujdesaiassociates.com
LinkedIn: linkedin.com/in/ca-anuj-desai-122547230