Why Sinking Fund

Apartment society has regular maintenance requirement and major maintenance and capital requirements. For the regular maintenance requirements, the society (whether being managed by the apartment association, Co-Operative Housing Society or builder), raises the maintenance bills. A society however has some non-periodic maintenance and major funds’ requirements. The societies raise sinking fund or repair fund for such scenarios. Why should there be separate contributions as sinking fund and repair fund? Are these contributions taxable?


Let us tackle the second question first – Are the contributions towards sinking fund and repair taxable. The answer is yes. The contributions are taxable. It could however be subjected to monthly taxable threshold of Rs 5000/month in case the bills are being raised by the society.

Now let us example the first question - why should there be separate contributions as sinking fund or repair fund?. Typically, the laws governing co-operative housing society state that the members should contribute certain funds as the sinking fund for the society. An apartment owner does not have such legal requirements.

In general, raising sinking funds or repair funds should be considered as a good business practice. A society may have major repair requirements with respect to structural repair of the building or road repair etc. A society also has fixed assets with limited life. These assets could include lifts, diesel generators, transformers etc. It could be a good business practice to generate contributions from the members towards the future expenses so that the funds are available when the society needs to replace a major asset. Of course, a society can always collect specific contributions when such a requirement arises; but the contributions required may be very big at that time.

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