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A High Court ruling held that GST does not apply to residential hostel accommodation used as a home, treating it like renting a residential dwelling. This article explains the ruling and its impact.
Recently, the Karnataka High Court declared that residential properties converted into hostels for students and working professionals are exempt from Goods and Services Tax (GST). This significant ruling clarifies the tax treatment for such accommodations.
Scope of Supply Under GST Law
According to a notification from the Central Board of Indirect Taxes and Customs (CBIC), a residential unit rented out as a hostel for students and working individuals is considered a residential dwelling. Consequently, because it is primarily used for habitation, it is not subject to GST as per the scope of supply under GST regulations.
GST Treatment and Available Exemptions
Based on CBIC Notification No. 9/2017-Integrated Tax (Rate), issued on June 28, 2017, services involving the rental of residential premises as hostels for students and working professionals are covered by Entry 13 of the notification and are thus eligible for GST exemption.
| Sl. No. | Chapter, Section, Heading, Group or Service Code (Tariff) | Description of Services | Rate (per cent) | Condition |
|---|---|---|---|---|
| 1 | 2 | 3 | 4 | 5 |
| 13 | Heading 9963 or Heading 9972 | Services by way of renting of residential dwelling for use as residence | Nil | Nil |
Input Tax Credit Eligibility
While the notification provides GST exemption for residential dwellings used as hostels for students and working professionals, the Goods and Services Tax paid by property owners on inputs and services for maintaining these premises cannot be claimed as Input Tax Credit (ITC).
Key Advance Rulings and Judicial Decisions
The case involved petitioner Taghar Vasudeva Ambrish, the legal owner of a residential property. This property was divided among five owners, each possessing a floor. These lessors collectively leased their portions to M/S. D Twelve Spaces Private Limited, the lessee, for sub-leasing as a hostel. This hostel offered long-term accommodation, typically three months to one year, to students and professionals, in exchange for monthly rent.
The exemption notification clarifies that the Central Government has exempted GST on such services, specifically including the rental of residential dwellings for use as residences.
However, the Appellate Authority for Advance Ruling (AAAR) Karnataka previously confirmed the AAR’s decision, stating that the petitioner was not eligible for GST exemption under Entry 13 of Notification No. 9/2017 – Integrated Tax (Rate) for renting a residential dwelling for residential use. The AAAR reasoned that the property, rented as a hostel, resembled a commercial or social accommodation rather than a pure residential one.
Furthermore, the AAAR maintained that GST exemption only applies when the residential dwelling is used for residence directly by the person who rented or leased it.
Subsequently, the Karnataka High Court, in the case of Taghar Vasudeva Ambrish v. Appellate Authority for Advance Ruling (AAAR) Karnataka, overturned the AAAR’s decision. The High Court rejected the denial of GST exemption to the assessee for renting a property used as a hostel for students and working women. The court affirmed that a residential dwelling rented as a hostel to students and working women still qualifies as a residential dwelling used for residence. It emphasized that the notification does not mandate the lessee to directly use the premises as a residence. Therefore, the assessee cannot be denied the exemption simply because the lessee does not personally reside in the property.
The court concluded that such services fall under the category of residential dwellings used for residential purposes. Thus, residential properties converted into hostels for students and working professionals are not subject to Goods and Services Tax (GST).
Frequently Asked Questions
What did the court rule on hostel GST?
The High Court held that hostel and paying-guest accommodation used for residential purposes is exempt from GST, akin to the exemption for renting a residential dwelling.
Why is residential accommodation GST-exempt?
Renting a residential dwelling for use as a residence has been exempt under GST; the court applied the same logic to hostels used as long-term homes.
Does this apply to all hostels?
The exemption turns on residential use; commercial or short-stay lodging can be treated differently, so the specific facts matter.
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