In an attempt to bring the cooperative societies run by political parties and other organisations under the GST net, a report by the Central GST, Central Excise and Customs deputy commissioner has revealed that any cooperative society with an aggregate turnover of more than Rs 20 lakh in a particular financial year shall be liable for registration under GST.
The report cited the provisions of Section 22 (1) of the Central Goods and Service Tax Act, 2017, to state that such entities are liable to pay GST. The report said that group deposit schemes run by cooperatives are like chits, and hence, liable to be taxed at 18%.
Further, the deputy commissioner stated that a chit fund in relation to a chit is chargeable under GST at the rate of 12%, provided that the credit of input tax charged on goods used in supplying the service has not been taken.
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According to the GST department, a chit fund is a transaction where a group of subscribers agrees to pay a certain amount of money over a set period. In a chit fund, ‘chit sala’ or ‘chitty gross amount’ is the total amount of money that all subscribers pay for an instalment, without any fixed discounts.
The ‘sala’ is calculated by multiplying the monthly premium or contribution by the duration of the chit in months. Hence, it is chargeable under GST, it said. “A cooperative society provides services to its subscribers in the form of facilities or benefits in the course of business for a ‘consideration’.
The cooperative societies are engaged in the activity of MDS (monthly deposit scheme) and GDS (group deposit scheme) in the same manner as conducting a chit for a consideration/remuneration. The amounts so received by them appear to be liable to GST,” said the deputy commissioner’s report submitted to the Kerala High Court.
The court had earlier impleaded suo motu in the petitions filed by depositors in the Edamulackal, Mylapra, and Kumpalampoika cooperative societies in Pathanamthitta, seeking a return of their deposits after frauds were reported in those societies.
The HC sought the report from the GST department regarding GST payment after the amicus curiae reported that various cooperative societies in the state are indulging in various types of activities and that major activities are accepting deposits, under multi-deposit schemes, as well as disbursing loans at a higher rate compared to nationalised banks.
Besides those activities, the cooperative societies are also running a ‘chitty’ business, which is recognised under the Chit Funds Act, 1982, the amicus curiae had stated.
Serious loss to Central and state govts: Report
“All these registered cooperative societies, while conducting the chitty business, are evading the payment of not only GST but also registration charges and stamp duty. Thus, a very serious loss has been caused to the central and state governments,” the amicus curiae report said.
✅ Conclusion
Cooperative societies engaging in chit funds, MDS, and GDS must ensure GST compliance if their turnover crosses ₹20 lakh. The recent observations by the GST department and the Kerala High Court have made it clear that non-compliance can lead to legal consequences and penalties.
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❓ Frequently Asked Questions (FAQs)
No, only those cooperative societies whose aggregate annual turnover exceeds ₹20 lakh are required to register under GST, as per Section 22(1) of the CGST Act, 2017.
Yes, chit funds and group deposit schemes run by cooperative societies are liable to GST. Chit services attract 12% GST, and group deposit schemes are treated like chits and are taxable at 18%.
Following complaints and fraud cases in certain cooperative societies, the Kerala High Court sought clarity. The GST department submitted a report revealing that many societies were evading GST, causing revenue loss to the central and state governments.
