RWA Income Tax — Section 10(24) Exemption

Yes, every RWA constituted as an Association of Persons (AOP) or registered as a society is a taxable entity under the Income Tax Act 1961 and must file a return of income under Section 139(1), IT Act 1961 (≡ §263/§349, IT Act 2025) if its total income exceeds the basic exemption limit. RWAs are assessed as an AOP under Section 2(31) of the Income Tax Act 1961, and income from sources such as bank interest, rental of community hall, or surplus on maintenance collections is taxable. The principle of mutuality under common law exempts contributions collected from members and spent for their benefit, but the exemption is narrow and does not cover income from non-members or investments. Returns must be filed in ITR-5 for AY 2026-27 and earlier years governed by the Income Tax Act 1961.

The mutuality principle — judicially recognised and applied by courts interpreting the Income Tax Act 1961 — exempts income where there is complete identity between contributors and participators and no scope for profit. Maintenance charges collected from members and applied entirely to common expenses typically qualify, but surplus retained beyond actual expenditure may be taxed as income of the AOP under the slab rates applicable to AOPs. Interest earned on fixed deposits of maintenance funds does not qualify for the mutuality exemption, as held in several tribunal decisions, and is taxable under the head 'Income from Other Sources' under Section 56 of the Income Tax Act 1961. RWAs must therefore maintain separate accounting of member contributions versus non-member income.

An RWA assessed as an Association of Persons is taxed under Section 167B of the Income Tax Act 1961. Where the shares of members are indeterminate or unknown, the AOP is taxed at the maximum marginal rate of 30% plus applicable surcharge and health and education cess of 4%. If the shares of members are known and determinable, each member's share is included in their individual returns, and the AOP itself pays tax only if any member's share is taxed at a rate lower than the maximum marginal rate. Most RWAs are taxed at the maximum marginal rate because share allocation among flat owners is not formalised. Proper legal advice on the constitution deed can help RWAs structure their taxation more efficiently.

An RWA can apply for registration under Section 12AB of the Income Tax Act 1961 if its objects qualify as 'charitable purposes' under Section 2(15), which includes advancement of any other object of general public utility. However, the 'general public utility' limb is subject to a cap: if the RWA's receipts from commercial activities exceed Rs 25 lakh in a year, the proviso to Section 2(15) of the Income Tax Act 1961 may disentitle it from charitable status for that year. Registration is obtained by filing Form 10A online on the income tax portal, and once registered, income applied to objects is exempt under Section 11(1)(a). The registration under Section 12AB must be renewed every five years.

Yes, an RWA that is required to get its accounts audited under any law — including societies registered under state societies registration acts — is an 'other person' liable to deduct TDS under Chapter XVII-B of the Income Tax Act 1961. TDS at 2% must be deducted on payments to contractors under Section 194C if aggregate payments to a single contractor exceed Rs 1 lakh in the financial year or a single payment exceeds Rs 30,000. Professional fees paid to engineers, chartered accountants, or legal consultants attract TDS at 10% under Section 194J of the Income Tax Act 1961. Failure to deduct or remit TDS makes the RWA an assessee-in-default under Section 201 and attracts interest at 1.5% per month under Section 201(1A).