The Authority of Advance Ruling (AAR) has made an important announcement regarding the Goods and Services Tax (GST) on rent paid for hostel accommodations and paying guests. According to the AAR’s ruling in two separate cases, a 12 percent GST will now be levied on such rentals. The Bengaluru bench of the AAR clarified that hostels cannot be considered residential dwelling units and are therefore not exempt from GST.
In one of the cases, Srisai Luxurious Stay LLP sought an advance ruling, and the AAR stated that the GST exemption on accommodation services, applicable to charges up to ₹1,000/- per day provided by hotels, clubs, and campsites, was valid until July 17, 2022. However, the rent paid by inhabitants for PG/hostel services does not qualify for GST exemption. The AAR clarified that the services provided by the applicant are not equivalent to renting residential dwellings for use as a residence.
VIDEO | "Authority of Advance Ruling has said that hostel accommodation given to students should not be exempted from GST. The reason given is that 'residential dwelling' should be on a long-term basis," says tax expert Ved Jain on hostel accommodation to attract 12 per cent GST. pic.twitter.com/arpfDKzOoe
— Press Trust of India (@PTI_News) July 29, 2023
The Karnataka AAR, represented by MP Ravi Prasad and Kiran Reddy T, further ruled that GST on reverse charge would be applicable to the rental payments made to the landowners by the applicant. As the applicant’s services are subject to GST, the applicant must obtain GST registration.
The Lucknow bench of the AAR also addressed a similar case by Noida-based V S Institute & Hostel Pvt Ltd, stating that GST would apply to hostel accommodations costing less than ₹1,000 per day from July 18, 2022, onwards.
AMRG & Associates Senior Partner Rajat Mohan expressed concern that the 12 percent tax on student accommodations in hostels and dormitories could lead to higher costs for Indian families. He suggested that the GST council should consider adopting policies to neutralize the tax cost in the entire education ecosystem, including student accommodation.
Tax Expert Ved Jain explained that the AAR’s reason for levying a 12 percent GST on hostel or PG accommodations is that residential accommodations should be on a long-term basis. However, since hostels and PG accommodations often involve multiple beds and shared spaces among several people, they do not fall under the category of “residential dwelling,” and therefore, they will not attract GST, as per the AAR’s ruling.