No GST on certain fee by clubs without Sec 7 being amended

In the case of M/s. Bow-ring Institute, the Authority of Advance Rulings (AAR) of Karnataka held that the members club is not liable to pay Goods and Services Tax (GST) on subscription fees and infrastructure development fund received from members unless the government notifies the amended Section 7 of the Central Goods and Services Tax Act, 2017 (“CGST Act”). The Order No. KAR ADRG 27/2021 was passed on 22nd April 2021.

The applicant raised two questions. These were whether the sum received as membership subscription fees charged by the applicant’s members for the facilities liable to GST as service under the CGST Act. Also, it was asked whether the money raised as an infrastructure development fund for the development and upkeep of the applicant’s facilities subject to GST as service under the CGST Act.

The AAR observed that Section 108 of the Finance Act, 2021 (“Finance Act”) made a retrospective amendment to Section 7 of the CGST Act, stating that the Finance Act has overruled what the courts have kept up to this point. It has countered the doctrine of mutuality by way of Explanation, which states that for Section 7 of the CGST Act, which defines “Supply”, the members or constituents of the club and the club are two distinct bodies and individuals.

However, the amendment to Section 7 of the CGST Act will only affect the date that the Central Government notifies it. It will then be notified and the related amendments passed by the States and Union Territories in their respective Acts.

According to the Hon’ble Supreme Court judgement in a similar case of M/s. Calcutta Club Limited, the applicant is not liable to pay GST on subscription fees and Infrastructure Development Fund raised from members unless the amended Section 7 of the CGST Act is notified by the CBIC.

The applicant, M/s. Bow-ring Institute is a non-profit club and literary and scientific society established by the British in 1868. Rather than being a proprietary club, it is a members-only club. Members contribute through membership fees and an infrastructure improvement fund, which is used to provide utilities and merchandise and reading space, a library, chambers for family and friends, a pub, and sports facilities. An admission fee as an infrastructure development fund is paid in addition to the subscription fees at the time of the member’s admission to the applicant. 

Furthermore, the applicant employs catering services to provide food and drinks and operate a supermarket on the applicant’s premises that are only accessible to members. These outsourced organisations charge GST on food, drinks, and merchandise sold to members. The applicant deducts the cost of certain products and services from the members’ membership fees.

In the future, if the amendment to the CGST Act gets notified, it shall have a retrospective effect. It may bring the club’s collection of contributions for activities under the purview of the GST law.

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