GST on Cleaning & Housekeeping — 18% GST, Municipal Work Exempt

CLEANING COMPANY — DUAL CLIENTS (Commercial + Government): YOUR SITUATION: Commercial clients (offices, malls, IT parks): 18% GST. Government contracts (Swachh Bharat, municipal cleaning): potentially EXEMPT. GOVERNMENT EXEMPTION — WHEN DOES IT APPLY? Entry 3, Notification 12/2017 (as amended): Pure services (excluding works contract/goods supply) provided to: Central Government, State Government, Union Territory, Local Authority. For functions entrusted to: Panchayat (Article 243G) or Municipality (Article 243W). SPECIFIED FUNCTIONS include: Public health, sanitation, conservancy. Solid waste management. Water supply. Drainage. These are EXACT MATCH for cleaning/sanitation services. SO: Your Swachh Bharat contract to municipal corporation: EXEMPT (0% GST). Your office cleaning to Infosys: 18% GST. CONDITIONS FOR EXEMPTION: (1) PURE SERVICE: Only services — no goods component > 25%. If you supply cleaning materials + service: Goods (materials) < 25% of contract value → EXEMPT (composite — pure service dominant). Goods (materials) > 25% → NOT exempt (composite supply involving goods). Practical: most cleaning contracts — labour is 80%+ and materials 10-20% → EXEMPT. (2) TO GOVERNMENT/LOCAL AUTHORITY: Direct contract with government body. If sub-contracted (you work for another company who has government contract): You → Main contractor: 18% (your recipient is not government). Main contractor → Government: EXEMPT (their recipient is government). So: sub-contractors DO NOT get exemption (their supply is to the main contractor). (3) SPECIFIED FUNCTION: Must be sanitation, public health, solid waste management, water supply, drainage. General office cleaning for government office: DEBATED. Argument FOR exemption: cleaning government building = sanitation/conservancy. Argument AGAINST: it's facility management (not public sanitation function). SAFE VIEW: Municipal/public area cleaning → clearly EXEMPT. Government office/building cleaning → grey area (conservative: charge 18%). ITC IMPLICATIONS: CRITICAL: If you have BOTH exempt and taxable supplies: ITC REVERSAL required (Rule 42/43). Input ITC must be proportioned between: Taxable supplies (commercial — 18%): ITC available. Exempt supplies (government): ITC NOT available (reversed). Formula: Eligible ITC = Total ITC × (Taxable turnover ÷ Total turnover). Example: Total ITC: ₹5,00,000/year. Commercial revenue (taxable): ₹60,00,000. Government revenue (exempt): ₹40,00,000. Eligible: ₹5L × (₹60L ÷ ₹100L) = ₹3,00,000. Reversed: ₹2,00,000 (cannot claim). ACCOUNTING REQUIREMENTS: Maintain SEPARATE accounts for: Exempt supplies (government contracts). Taxable supplies (commercial contracts). Common inputs (shared between both). ITC reversal: compute every month in GSTR-3B. Annual reconciliation in GSTR-9. PRACTICAL TIPS: (1) If government contracts are small (< 20% of revenue): ITC reversal impact is minimal — simpler to manage. (2) If government contracts are large (> 50%): Consider: separate entity for government contracts (no ITC accumulation issue). Or: accept ITC reversal as cost of doing business. (3) INVOICE FORMAT: Government: invoice with 'Exempt under Notification 12/2017, Entry 3'. Commercial: invoice with 18% GST. (4) Tax on chemicals (supplied as part of service): Government contract (pure service): chemicals included → still EXEMPT (if < 25% of value). Commercial: chemicals part of composite service → 18% (service rate). (5) TDS BY GOVERNMENT: Even though supply is EXEMPT from GST: Government may deduct TDS at 2% (Section 51). Wait — if supply is EXEMPT, TDS doesn't apply (TDS only on taxable supplies). Confirm: exempt supplies → no GST TDS. But: income tax TDS (Section 194C — contractor) still applies (1-2%).

RESIDENTIAL WELFARE ASSOCIATION (RWA) — CLEANING GST: BACKGROUND: RWA collects monthly maintenance from members. Uses funds for: security, cleaning, maintenance, electricity, water, etc. RWA hires cleaning agency for common areas. GST FRAMEWORK FOR RWA: STEP 1 — RWA PAYING CLEANING AGENCY: Agency charges RWA: 18% GST on cleaning service. This is INWARD supply for RWA. Can RWA claim ITC? DEPENDS on Step 2 (RWA's output). STEP 2 — RWA CHARGING MEMBERS: Entry 77 of Notification 12/2017: RWA's supply to members: EXEMPT if: (a) Monthly contribution per member ≤ ₹7,500; AND (b) RWA is registered under Societies Act / Co-operative Act / similar. If BOTH conditions met: RWA → Members: EXEMPT (0% GST on maintenance). If monthly contribution > ₹7,500 per member: RWA → Members: 18% GST on FULL amount (not just excess over ₹7,500). ITC ANALYSIS: Case 1: Monthly maintenance ≤ ₹7,500 (EXEMPT output): RWA's output = EXEMPT. ITC on cleaning agency bill: REVERSED (cannot claim). The 18% paid to cleaning agency = COST to RWA. Members indirectly bear this cost (through higher maintenance). Case 2: Monthly maintenance > ₹7,500 (TAXABLE output — 18%): RWA's output = TAXABLE (18%). ITC on cleaning agency bill: AVAILABLE (can claim). The 18% paid to cleaning agency: offset against 18% charged to members. Net GST impact: NIL for RWA (pass-through). But: members pay 18% on top of maintenance (non-refundable for residential use). THRESHOLD — DOES RWA NEED TO REGISTER? RWA with aggregate turnover > ₹20 lakh: MUST register. Turnover = total maintenance collection from ALL members (annual). Example: 100 members × ₹5,000/month = ₹50,000/month × 12 = ₹60,00,000/year. This is > ₹20 lakh → RWA must register. But: if ALL members pay ≤ ₹7,500 → exempt supply → still register (for compliance) but no GST charged. If SOME members pay > ₹7,500: RWA charges GST to THOSE members only. ITC: proportionate (based on taxable vs exempt ratio). PRACTICAL SCENARIOS: Scenario A: Society with 200 flats, maintenance ₹4,000/member/month: Total: ₹4,000 × 200 × 12 = ₹96 lakh (> ₹20L — must register). But: ₹4,000 < ₹7,500 → EXEMPT supply to members. GST charged to members: ₹0. ITC on cleaning agency: BLOCKED (exempt output). Cleaning cost (₹2L/month + 18% = ₹2.36L): paid from maintenance fund (no ITC recovery). Scenario B: Luxury society, maintenance ₹15,000/member/month: ₹15,000 > ₹7,500 → TAXABLE at 18%. GST to members: 18% × ₹15,000 = ₹2,700/member/month. ITC on cleaning: AVAILABLE. Cleaning: ₹5L/month + ₹90K GST → RWA claims ₹90K ITC. Net: members pay more (18% maintenance) but RWA's costs are offset. Scenario C: Mixed (some flats high maintenance, some low): 2BHK: ₹5,000/month (< ₹7,500 → exempt). 3BHK: ₹8,000/month (> ₹7,500 → taxable at 18%). 4BHK penthouse: ₹12,000/month (> ₹7,500 → taxable at 18%). ITC: proportional (based on taxable member revenue vs total). Complex accounting but required by law. TIPS FOR RWA COMMITTEES: (1) Keep maintenance ≤ ₹7,500 if possible (exempt — saves 18% for members). (2) If > ₹7,500 unavoidable: maximize ITC claims on all inputs. (3) Sinking fund / corpus fund: NOT part of ₹7,500 calculation (one-time contribution, not monthly maintenance). (4) Non-member charges (rented flat — tenant maintenance): If billed to member (owner): same ₹7,500 rule. If billed directly to tenant (non-member): always 18% (Entry 77 only for members). (5) Parking charges (separate from maintenance): If separately billed: 18% (immovable property service). If included in maintenance: part of ₹7,500 calculation.

MANPOWER SUPPLY (HOUSEKEEPING) vs CLEANING SERVICE — RCM DISTINCTION: THIS IS THE MOST IMPORTANT DISTINCTION FOR HOUSEKEEPING CONTRACTS: CLEANING SERVICE (No RCM): Definition: Providing cleaning/housekeeping as a SERVICE (outcome-based). Contract says: 'Maintain cleanliness of premises to specified standards'. Agency controls: HOW the cleaning is done (methods, chemicals, equipment). Agency provides: staff + materials + equipment + supervision. Billing: per sq ft, per area, lump sum monthly. Client pays for: RESULT (clean premises). SAC: 998531 (cleaning services). GST: 18% — FORWARD CHARGE always (agency charges, agency pays). NO RCM regardless of supplier type (corporate or non-corporate). MANPOWER SUPPLY (RCM Possible): Definition: Providing PERSONS (inputs) to the client. Contract says: 'Deploy X number of housekeeping staff at client premises'. Client controls: HOW staff work (client supervises, gives instructions). Agency provides: ONLY people (client provides materials, equipment, supervision). Billing: per person per month/day. Client pays for: PEOPLE (not outcome). SAC: 998512 (temporary staffing/labour supply). GST: 18% — but RCM applies if supplier is NOT body corporate AND recipient IS registered. RCM TRIGGER — NOTIFICATION 13/2017 (Entry 14): 'Supply of security services (supply of security personnel)' and by extension supply of manpower. When supplier is: Individual, Proprietor, Partnership, HUF, Trust, AOP (NOT company/LLP). When recipient is: Registered person under GST. Then: Recipient pays 18% under RCM. HOW TO DETERMINE — CONTRACT ANALYSIS: RED FLAGS FOR MANPOWER SUPPLY (RCM risk): ❌ 'Provide 10 housekeeping boys for 3 shifts'. ❌ 'Deploy staff as per our requirement — we will supervise'. ❌ 'Replace staff if we find unsatisfactory'. ❌ Billing per-person per-shift. ❌ Client provides cleaning materials. ❌ Client's supervisor directs daily work. GREEN FLAGS FOR CLEANING SERVICE (No RCM): ✅ 'Maintain cleanliness of 50,000 sq ft to Grade A standard'. ✅ 'Agency shall use own chemicals and equipment'. ✅ 'Agency's supervisor shall ensure quality compliance'. ✅ Billing per sq ft or lump sum. ✅ Performance SLA with penalties for non-compliance. ✅ Agency decides number of staff needed. THE GREY AREA (Real-world): Most contracts have ELEMENTS OF BOTH: Agency provides staff but client also gives some direction. Agency's supervisor is present but client's FM manager oversees. Billing is partly per-person, partly per-area. In such cases: SUBSTANCE OVER FORM. What is the DOMINANT nature of the arrangement? If agency has significant control + accountability for outcomes: CLEANING SERVICE (no RCM). If client has primary control + agency just deploys bodies: MANPOWER SUPPLY (RCM possible). JUDICIAL/DEPARTMENTAL VIEWS: Courts have looked at: (1) Who has the right to control and supervise the workers? (2) Who provides tools and materials? (3) What is the basis of billing (outcome vs headcount)? (4) Can the client reject/replace specific individuals? If answers point to CLIENT having control: manpower supply. If answers point to AGENCY having control: service supply. PRACTICAL RECOMMENDATION: For cleaning/housekeeping agencies that are NOT body corporate: ALWAYS structure as SERVICE AGREEMENT: 'We provide cleaning service for your premises. We determine staffing, methods, materials.' This AVOIDS RCM complications entirely. Your recipient (corporate client) prefers this too: No RCM compliance burden (don't need to self-assess). Clean ITC claim on agency's forward charge invoice. For body corporate agencies (Pvt Ltd, LLP): Doesn't matter — no RCM either way (body corporate = always forward charge). Can use either service or manpower model. DOCUMENTATION CHECKLIST: (1) Contract title: 'Housekeeping Service Agreement' (not 'Manpower Supply'). (2) Scope: define areas/frequency/standards (not headcount). (3) Control: 'Agency shall supervise its own personnel'. (4) Materials: 'Agency shall provide all cleaning materials and equipment'. (5) Billing: per-area or lump sum (not per-person). (6) SLA: quality standards with measurement criteria. (7) Insurance: agency carries worker insurance (not client). These 7 points make it clearly a SERVICE — no RCM risk.

HOSPITALS & SCHOOLS — CLEANING GST (Exempt Output Entities): THE PROBLEM: Hospitals provide: healthcare services → EXEMPT (0% GST). Schools provide: educational services → EXEMPT (0% GST). Both need: cleaning services → PAY 18% GST to agency. Can they claim ITC? NO — because their output is EXEMPT. Section 17(2): ITC attributable to EXEMPT supplies → NOT available. IMPACT ON HOSPITALS: Cleaning agency charges hospital: ₹10,00,000/year + 18% GST = ₹1,80,000 GST. Hospital's output: healthcare (exempt). ITC available: ₹0 (must reverse any ITC claimed). The ₹1,80,000 GST: pure COST (added to hospital's operating expenses). This increases healthcare costs (passed to patients via higher fees). HOSPITAL — STRATEGIES TO MINIMIZE: (1) Employ own cleaning staff (no GST): In-house housekeeping team on hospital payroll. Salary: not a supply → no GST. Materials (chemicals, equipment): purchase at 18% — ITC BLOCKED (exempt output). But: no 18% on SERVICE component (which is the major portion). Savings: entire agency margin + 18% service GST avoided. (2) Composition dealer cleaning agency: If agency is on composition scheme (6%): Agency doesn't charge GST to hospital. But: agency can't issue tax invoice (hospital can't claim ITC anyway). Lower effective rate (6% composition tax embedded in price). Hospital negotiates lower price (no 18% GST markup). (3) Reduce contract value (legitimate — better pricing): Provide materials yourself (hospital buys chemicals — blocked ITC anyway). Agency charges only for labour (lower service value = lower GST base). Agency service: ₹7,00,000 (labour only) + 18% = ₹1,26,000 GST. Materials (hospital buys directly): ₹3,00,000 + 18% = ₹54,000 (blocked — cost). Total GST cost: ₹1,80,000 (same! — no real saving). ACTUALLY: reducing agency value doesn't help because all ITC is blocked. IMPACT ON SCHOOLS: Same as hospitals — educational institution with exempt output. Cleaning GST: pure cost (no ITC). Schools with TAXABLE activities: Coaching classes (commercial coaching — taxable at 18%). Hostel > ₹7,500/month (taxable). Skill development courses (some taxable). If school has BOTH exempt + taxable: Proportionate ITC on cleaning (Rule 42). Only the portion attributable to taxable output → ITC available. MIXED-USE HOSPITALS: Hospital with: Healthcare (exempt): 70% revenue. Pharmacy (5% GST on medicines sold): 10% revenue. Canteen (5% on food): 5% revenue. Room > ₹5,000/day (5% GST since 2022): 15% revenue. Taxable revenue: 30% of total. ITC on cleaning: 30% available, 70% reversed. Calculation: Cleaning GST paid: ₹1,80,000/year. Eligible ITC: 30% × ₹1,80,000 = ₹54,000. Reversed: ₹1,26,000 (cost). IT'S STILL MOSTLY A COST for hospitals. CHARITABLE TRUSTS / NGOs: Charitable hospital (Section 12AA/12AB registered trust): Same treatment — healthcare exempt → no ITC on cleaning. Charitable trust doing: Religious activities (exempt). Educational (exempt). No taxable output → 100% ITC reversal. GOVERNMENT HOSPITALS: Government hospital (not separate legal entity — part of government): Cleaning service TO government for public health function: EXEMPT (Entry 3, Notification 12/2017). So: agency providing cleaning to government hospital: 0% GST (exempt supply). But: agency providing to PRIVATE hospital: 18% GST. IMPORTANT DISTINCTION: Government hospital = exempt supply (agency charges 0%). Private hospital = taxable supply (agency charges 18%, hospital can't claim ITC). THIS IS WHY: Private hospitals' costs are higher than government (GST is one factor). RECOMMENDATIONS FOR EXEMPT ENTITIES: (1) In-house staff where possible (zero GST on employment). (2) For outsourced cleaning: negotiate pricing that factors in non-creditable GST. (3) If partially taxable: maintain proper records for proportionate ITC. (4) Consider: government entity partnerships (to access exempt supply). (5) Long-term: industry lobbying for exemption on healthcare/education inputs (ongoing demand at GST Council).