How to build an apartment association's annual budget

Most association budgets are built the same way: take last year's figure, add eight or ten per cent, put it to the AGM. It passes, because nobody in the room has anything better to argue with.

Then the lift AMC comes up for renewal at a number nobody expected, the painting that was deferred twice can no longer be deferred, and by February the committee is asking members for a special levy — the single fastest way to lose a room's goodwill.

A budget built properly takes a weekend, once a year. Here is the method.

Start from what you actually spent, not from last year's budget

This is the whole difference. Last year's budget was itself a guess. Last year's spend is evidence.

Pull twelve months of actual payments and sort them into heads. If your records are a bank statement and a cheque book, this is the painful part; if the books are maintained properly, it is an afternoon. Either way, do not skip it — a budget derived from another budget inherits every error ever made.

Group into heads you will still recognise next year:

• Security — agency contract, guard reliever costs, any statutory revisions
• Housekeeping — agency or in-house staff, consumables, pest control
• Utilities — common-area electricity, DG fuel, water and tanker supply
• Lifts — AMC, spares, third-party inspection where applicable
• Water and sanitation — STP or treatment plant operations, sludge removal, plumbing
• Common-area repairs — the routine, unglamorous line that is always underestimated
• Landscaping and amenities — gardening, gym and clubhouse upkeep, pool
• Administration — audit fee, legal and professional charges, printing, bank charges, software
• Insurance — building, public liability, and any statutory cover
• Contingency — see below

Then, beside each head, put a column for what you expect it to be next year, and a one-line reason for the difference. "Security up 9% — agency contract revision due in November" is a defensible line. "Security up 9%" is not.

The three lines committees forget

One. The items that do not happen every year. External painting, terrace waterproofing, lift modernisation, motor or pump replacement, DG overhaul. These are the costs that turn into emergency levies precisely because they are absent from the annual budget. Estimate the cycle — painting every four to five years, waterproofing every five to seven — and set aside a portion each year, so the year it lands is not a crisis. Where those reserves sit, and what your bye-laws call them, is covered in sinking fund and corpus fund.

Two. Collection is never 100%. Budgeting income at the full billed amount assumes every owner pays on time, every month. No association achieves that. Look at your actual collection efficiency over the last two years and budget to it — if you collected 92%, budget 92% and plan the recovery separately. The alternative is a budget that is short from the first month and nobody knows why. What actually works on the recovery side is a separate discipline; we have written it up in recovering maintenance arrears.

Three. A contingency you do not raid. Five per cent of the operating budget is a reasonable starting point. The discipline is not setting it — it is refusing to treat it as slack for overspend on ordinary heads.

The statutory lines nobody puts in the first draft

These are not optional, and they are where a committee's personal exposure usually sits.

Tax deducted at source on your contractors

An association that pays a security agency, a housekeeping contractor or a lift maintenance firm is generally required to deduct TDS and deposit it. This is not a large sum, but the penalties and interest for not doing it are real, and the liability does not vanish when the committee changes.

This is the first financial year under a new law. The Income-tax Act, 2025 came into force on 1 April 2026 and replaces the Income-tax Act, 1961. The substance for contractor payments is unchanged, but the section number your CA and your accounting software refer to has moved: the old section 194C is now section 393(1). The Act also replaces "previous year" and "assessment year" with a single "tax year", which is worth knowing before you read this year's audit report.

Under section 393, deduction on contractor payments is triggered when:

• a single sum paid or credited exceeds ₹30,000, or
• the aggregate of such sums in the tax year exceeds ₹1,00,000

The rate is 1% where the contractor is an individual or Hindu undivided family, and 2% for any other resident contractor.

Rent and professional or technical fees have their own separate entries and thresholds — do not assume the contractor figures apply to them. Put the exact position for your association to your CA.

GST — only if you cross both thresholds

A society is outside GST unless both the monthly contribution per member exceeds ₹7,500 and annual turnover exceeds ₹20 lakh. Getting either wrong flips the answer, and there is a genuine unresolved divergence about whether GST then applies to the whole contribution or only the excess. That question, and what counts towards the ₹7,500, is set out in full in is GST payable on maintenance charges. To check where your own association stands, run both tests through the free GST applicability checker.

Interest on your reserves is taxable

Member contributions are generally outside tax under the principle of mutuality — an association cannot make a profit out of itself. Interest earned on the association's bank deposits is a different matter. The Supreme Court held in Bangalore Club v. Commissioner of Income Tax (2013) that interest on fixed deposits placed with banks is taxable, and that mutuality does not shield it, because the relationship with the bank is that of banker and customer. That position has been affirmed since.

If your sinking fund sits in fixed deposits — and it should — there is a tax liability on the interest, and it belongs in the budget rather than in a surprise at audit.

Turning the budget into a per-flat charge

Once total expenditure is set, it has to be divided. How it is divided is not a committee preference — it is set by law and by your own registered documents, and it differs by state.

In Karnataka, the Karnataka Apartment Ownership Act, 1972 provides at section 10 that common expenses are charged in proportion to each owner's percentage of undivided interest, not equally per flat. A great deal of the society guidance online describes Maharashtra's position instead, which is not the same thing. Whichever state you are in, the answer comes from the Act that applies to you, your Declaration and your registered bye-laws — read them rather than copying a neighbouring complex.

Work out the per-unit figure both ways before the AGM. If your association has been charging equally per flat while its documents say otherwise, you want to discover that in a committee meeting and not in a dispute.

Get it approved properly

Put the budget to the general body with three columns side by side: last year's budget, last year's actual, and next year's proposal. Committees resist this because the middle column exposes where the last estimate was wrong. That is exactly why it belongs there — it is the column that makes the third one credible, and it converts the AGM from an argument into a review.

Circulate it with the notice, not at the meeting. People cannot scrutinise a spreadsheet held up at the front of a room, and a budget passed without scrutiny is a budget nobody feels bound by.

Then actually track against it

A budget approved in August and next opened in July is decoration. The value is in the monthly comparison — this head is at 70% of its annual allocation in month five, why? That is a question worth asking in September, and worthless in March.

This is the part that is genuinely hard on a spreadsheet passed between volunteers, and the reason committees drift back to "last year plus ten per cent". If your books already carry every payment against a head, the variance report is a by-product rather than a project. Societly's society-books module is built for exactly that, at ₹15 per unit per month on the Growth plan, with no lock-in — but the method above works regardless of what you use to run it. The broader case for moving off spreadsheets is in society management software vs spreadsheets.

The short version

1. Build from twelve months of actual spend, sorted into heads — never from last year's budget.
2. Justify every change with a one-line reason, in writing.
3. Provide for non-annual items — painting, waterproofing, major replacements — every year, not in the year they land.
4. Budget income at your real collection rate, not the billed amount.
5. Keep a contingency of around 5%, and do not raid it.
6. Provide for TDS on contractors — ₹30,000 single or ₹1,00,000 aggregate, at 1% or 2%, now under section 393 of the Income-tax Act, 2025.
7. Check GST against both thresholds, and get a written CA opinion.
8. Remember that interest on your deposits is taxable, even though member contributions are not.
9. Divide the total by the basis your state's Act and your registered documents actually specify.
10. Circulate the budget with the AGM notice, showing last year's actuals beside it — and track against it monthly.

If you are doing this for the first time, read it alongside your first year on the committee and what your association's accounts should show.

Sources

• Income-tax Act, 2025 comes into force from 1st April 2026 — Press Information Bureau
• Section 393, The Income-tax Act, 2025 — tax deduction at source
• The Karnataka Apartment Ownership Act, 1972 (India Code)
• M/s Bangalore Club v. Commissioner of Income Tax (Supreme Court, 14 January 2013)
• CBIC tax information portal — GST circulars and notifications