Property management and facility management services are taxable at 18% under SAC 997221, described as property management services on a fee or commission basis or on a contract basis. The rate is not the difficulty. The difficulty is the characterisation of a service that bundles manpower, housekeeping, security, repairs, vendor coordination and administrative functions for a single monthly fee, and the distinction between a genuine reimbursement and consideration for a supply.
The Rate and the Scope of the Service
Property management covers the administration of a property on behalf of the owner: rent collection, tenant coordination, vendor management, accounting and reporting. Facility management covers the operational running of the property: housekeeping, security, engineering, repairs and maintenance. Both are taxable at 18% where the supplier is registered and the recipient is in India. The SAC 997221 applies to property management on a fee or commission basis or on a contract basis; the facility management components may fall within the same or adjacent headings depending on the scope.
The supplier should register once aggregate turnover crosses ₹20 lakh (₹10 lakh in the special category states specified for services). Aggregate turnover includes management fees, commission income, reimbursements that are consideration for a supply and any other taxable receipts.
The Composite-Supply Analysis
A facility management contract typically bundles manpower supply, consumables, equipment, supervisory services and administrative coordination for a single monthly fee. The composite-supply question is whether the bundle is naturally bundled around a principal supply—facility management—or whether it is a mixed supply of separable deliverables. Where the dominant purpose is the management of the facility and the components are incidental to that purpose, the bundle is ordinarily a composite supply taxed at the rate applicable to facility management. Where the contract separately prices distinct deliverables that are not naturally bundled, the mixed-supply analysis becomes relevant.
The contract and the invoice should align with the chosen characterisation. A generic “management services” description across a bundle that includes manpower, consumables and repairs creates ambiguity if the classification is reviewed.
The Pure-Agent and Reimbursement Distinction
A property manager often pays vendors on behalf of the owner—electricity bills, lift maintenance, security agency invoices—and recovers the cost. Whether the recovery is a reimbursement outside GST or consideration for a supply depends on the pure-agent conditions. A pure agent acts as a conduit: the agent does not use the goods or services for its own account, the agent’s payment is authorised by the principal, the principal is the recipient of the vendor’s supply, and the agent receives no separate consideration for the agency. Where these conditions are satisfied, the reimbursement is not included in the agent’s taxable value.
Where the manager procures the service in its own name and charges the owner a marked-up or bundled amount, the manager is the recipient of the vendor’s supply and is making a further supply to the owner. The recovery is then consideration for the manager’s supply and is taxable at the applicable rate. The manager should not label every recovery as a “reimbursement” without testing the pure-agent conditions.
The Government-Hospital Exemption and Its Limits
The Tamil Nadu AAR has held that supply of manpower services for facility management to Government hospitals qualifies for exemption under Entry 3 of Notification No. 12/2017-Central Tax (Rate), as amended, because the services constitute pure services to a governmental authority in relation to functions entrusted to a municipality under Article 243W of the Constitution. The exemption is fact-specific and institution-specific; it does not extend to facility management for private hospitals, corporate offices or residential complexes. A supplier that assumes the exemption applies across its government contracts without verifying the entry and the nature of the service is exposed to a demand.
Documentation and Compliance
The manager should maintain the contract, the scope of work, the vendor invoices, the pure-agent documentation where reimbursement treatment is adopted, and the GST returns. The invoice should describe the service consistently with the SAC and the contract. Where the contract bundles taxable and exempt components, the manager should maintain a reasonable allocation and should not apply the exemption to the entire contract merely because one component is exempt.
What the Manager Should Control
The property and facility manager’s GST position depends on three variables: whether the bundled contract is correctly characterised as a composite supply; whether recoveries from the owner satisfy the pure-agent conditions or are consideration for a further supply; and whether any claimed exemption is supported by the specific entry and the nature of the recipient. The manager that controls these variables avoids under-reporting recoveries and misapplying exemptions.
Call to Action: We advise property managers, facility management companies and property owners on composite-supply classification, pure-agent documentation and exemption analysis. For a contract-specific review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.