Budget and Bifurcation of Maintenance Bill

Maintenance-Bill-Bifurcation

Residential Society-Budget and Bifurcation of Maintenance Bill

Every Society has its own budget and bifurcation of collection of maintenance from the society members.  How much should be collected and under what Heads?

Charging society maintenance expenses to members under more specific heads is good instead of using an umbrella term for everything such as, ‘Maintenance charges’?
While making the Maintenance bill with proper heads, the managing committee should keep in mind that Bill is made as per Bye-laws and society members should be given a clear idea of all the services that they are paying for. It also shows transparency in handling Society accounts.

Thus, a Maintenance Bill should be prepared with proper heads so that each member knows if he has been charged correctly as per the laws laid down or not.
The first step is to make bills with proper heads. The Managing Committee members would need to prepare a budget. A Budget helps to understand the real financial health of a housing society. Hence, the Budget should be prepared at the beginning of every fiscal year.

What is a Budget?

A Budget is a financial document that reflects future income and expenses. It is a simple way to make financial information available to all members of the Society. It is easy to make and understand a budget Let us make one for your Society which will assist you to charge each member accurately as per the bye-laws.

First, make a list of major expenses that you have spent in the previous year, and find out what are the projected expenses for this year. For that, we will require the Income and Expenditure of the last 1 months or the amount spent on various services and utilities.

In the below table, we have expenses of the previous year and projected expenses of the current year. It is always advisable to consider and budget for a 10% rise in expenses to cope with any unforeseen or sudden hike in prices or an increase in service charges.


Expenses Previous year Current year(approx.10% Increase)
Common electricity charges 12,000 13,200
Water charges 5,000 5,500
Lift maintenance 30,000 33,000
Security charges 7,20,000 78,000
General repair and maintenance 1,00,000 1,10,000
 Printing and stationery 1,000 1,100
Audit fees 2,000 2,200
Accounting charges 10,000 11,000
Housing federation subscription 500 500
Education cess 120 120
Insurance 7,500 8,250
Salaries and wages 80,000 88,000
Miscellaneous expenses 5,000 5,500
Total expense 79,311 87,201

Now, let us consider the following information about ABC Co-operative Housing Society Ltd.

  1. The number of members of this Society is 12.
  2. Flat no.s 5 and 10 are on lease and/or license or rented.
  3. Out of 12 flat, 6 flats are of 600 sq. ft. each, and 6 flats are of 900 sq.ft. each.
  4. The estimated cost of construction of a flat is Rs. 1000/- per sq.ft. (excluding land cost).

Before we split the bills of this Society into various heads, we need to know on what basis the various charges are levied as per bye-laws (refer bye-law no. 67, 68 and 69).

  1. Service charges are equally divided among all members which include:
    1. Wages and salaries
    2. Common property tax
    3. Common electricity charges
    4. Printing and stationery
    5. Traveling allowance (Conveyance)
    6. Subscription of Education Fund
    7. An annual subscription of Housing Federation
    8. Accounting and audit fees
    9. Expenses incurred in Society meetings
    10. Legal charges
    11. Sitting fees paid to members of the Committee Society (if applicable as per bye-law no. 14 (d)).
    12. General repair and maintenance
  2. Water charges: These charges are as per the number of (a 600 sq. ft. flat has 1 inlet and a 900 sq. ft. flat has 2 inlets).
  3. Insurance charges: Equally distributed as per the area in sq. feet.
  4. Non Occupancy Charges: 10% extra of service charges.
  5. Parking charges: Number of vehicles and charges as decided by the General Body.
  6. Sinking Fund: At the rate decided at the meeting of the General Body, subject to the minimum of 0.25 percent per annum, of the construction cost of each flat, excluding the proportionate cost of the land (refer bye-law no. 13 (c)).
  7. Repair Fund: At the rate decided at the meeting of the General Body subject to the minimum of 0.75 percent per annum of the construction cost of each flat, excluding the proportionate cost of the land(refer bye-law no. 13 (a)).
  8. Interest on Arrears: As decided by the General Body or the maximum limit is 21% p.a. Simple interest. (Refer bye-law no 71).
  9. Education and Training Fund: Rs. 10/- per member / per month (refer New Model Byelaw no. 69(xiv)).

Instead of a monthly bill, if the Society prefers to give quarterly or six-monthly bills to members, then they can multiply the monthly amount into 3 or 6 months as applicable. Most Societies settle for a Quarterly frequency

 

Benefits of budgeting and bifurcating bills under various heads:

  1. The balance sheet becomes transparent and clear. Amount collected under each head is reflected exactly in the balance sheet.
    It makes reporting to members much easier since expenditure.
  2. The Society comes to know which account/ head is running in the surplus collection and which account/ head is running in deficit.
  3. Accordingly, the Managing Committee can put forth suggestions to raise/reduce funds under any particular account/head.
  4. This makes a comparison of escalation of charges easy in the future years, for example, if only security charges have increased then charges can be increased only under that particular head and the status quo can be maintained under other heads.
  5. In some societies, collection from members (income) is high compared to its expenses or in some other societies, income is very less as compared to expenses. Making a Budget will help to maintain a balance between income and expenditure.
  6. It protects the Society from making unnecessary expenditure/s directly controls expenses.
  7. Utility bills are paid punctually through a timely and exact collection of funds from the members.
  8. Sinking Fund and Repair Fund can be raised from members under separate heads. Thus, the exact amount collected under these funds can be converted into a Fixed Deposit at the end of the financial year.
  9. Parking Charges can be shown separately so that the members know for how many vehicles they have been charged. If a member purchases a new vehicle, say a car, then the charges for one car can be added in the bill under Parking Charges.
  10. Members will have a clear idea of whether Non-Occupancy Charges are as per bye-laws. Any amount may not be charged without correct calculations. In case of expiry of the leave and license agreement, the Non-Occupancy Charges can be removed from the bill.

Every Society should be financially organized. It is a one-time job to make a budget which would be very useful for the whole financial year. Managing Committee members should take up the responsibility and take the proper guidance of accounting procedures and split the maintenance bills into proper heads.

 

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